Mortgage and Real Estate Dictionary

Click on the first letter of the word you wish to find.

[ A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z ]

1003 / Uniform Residential Loan Application (URLA)

The form number assigned to the loan application all potential borrowers must complete to apply for a home loan. This application is commonly referred to as the "1003."

2–4 Unit Property

A property that consists of a structure that provides living space for two to four families, although a single mortgage or deed of trust evidences ownership of the structure.

30-day Lates, 60-day Lates, Etc.

Designations of the severity of mortgage delinquency. A mortgage payment is considered 30 days late when two payments are due. A mortgage payment is considered 60 days late when three payments are due.

3 Cs of Credit

Lenders consider three factors when reviewing a credit application: credit, capacity and collateral. Credit is the borrower's proven willingness to repay a debt. Capacity is the borrower's financial ability to repay a debt. Collateral refers to the property used to secure a loan transaction.

(3/2) Options

An alternative financing plan that enables households whose earnings are no more than 115 percent of the medium income in their regional area to make a 3 percent down payment with their own funds, coupled with a 2 percent gift from a relative or a 2 percent grant or unsecured loan from a nonprofit or state or local government program.

-A-

Abstract of Judgment

A summary of the essential provisions of a court judgment that, when recorded in the county recorder's office, creates a lien upon the property (both presently owned and subsequently acquired) of the debtor in that county

Abstract (of Title)

A historical summary of all the recorded transactions that affect the title to the property. An attorney or a title company will review an abstract of title to determine if there are any problems affecting the title to the property. All such problems must be cleared before the buyer can be issued a clear and insurable title.

Acceleration Clause

A loan provision giving the lender the power to declare all sums owing lender immediately due and payable upon the violation of a specific loan provision, such as the sale of the property, or the failure to make loan payments on time.

Example : John sells his property to Mary who takes over John's mortgage payments. They do not notify the lender of this transaction. The lender finds out that the title to the property has transferred and calls the loan, since the loan documents state that the loan is due on the sale of the property. John is now liable to pay his lender in full.

Accretion

The addition to land through natural forces like wind or water.

Example : deposit of soil carried by a river

Acknowledgment

Formal declaration before a public official (typically a Notary Public) that one has signed a document. Required before recording real estate legal documents, such as a deeds of trust.

Accrued Interest

The interest earned for the period of time that has elapsed since interest was last paid.

Addendum

An attachment to a contract, deed or other document that incorporates additional terms of information into the original.

Acre

A measure of land equal to 43,560 square feet.

Adjustment Cap

A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Adjustable Rate Mortgage (ARM)

Also known as a variable rate mortgage. The interest rate on these mortgages changes periodically.

Adjustment Period

This is the length of time for which the interest rate is fixed on an adjustable. Therefore if the adjustment period is six months, then the interest rate will remain fixed for six months, after which time it will adjust.

Adjustable-Rate Rider

A rider is an addition to a security instrument. The adjustable-rate rider outlines terms and conditions specific to an adjustable-rate loan. It must be recorded along with the security instrument at the county recorder's office.

Agreement of Sale

A written signed agreement between the seller and the purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also known as contract of purchase, purchase agreement, offer and acceptance, earnest money contract or sales agreement.
Back to top

Amenity

Any feature that enhances property value. Examples are off-street parking within a condominium community, the proximity of public transportation, tennis courts or a swimming pool.

Amortization

A gradual paying off of a debt by periodic installments which pay principal and interest.

Amortization Schedule

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance on the loan.

Annual Membership

An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee".

Annual Percentage Rate (APR)

The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution : the APR is sometimes computed differently by different lenders and can be misleading.

Annuity

Fixed payments an individual receives for a lifetime or a specified number of years at consistent intervals. For example, a person may receive an annuity from a pension plan or from an investment.

Application

An initial statement of personal and financial information which is required to approve your loan.

Application Fee

Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).

Appraisal

An opinion or estimate of the value of a property at a given date.

Appraised Value

An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., to the property and surroundings.

"As Is" Condition

Premises accepted by a buyer or tenant in the condition existing at the time of the sale or lease, including all physical defects.

Appreciation

An increase in the value of a house due to changes in market conditions or other causes.

Arm's Length Transaction

A transaction among parties each of who acts in his or her own best interest.

Example : A transaction between a father and his son would NOT be an Arm's length transaction

Assessed Value

The valuation placed upon a property by a public tax assessor for purposes of taxation.

Assessment

A local tax levied against a property for a specific purpose such as street lights.

Assignment of Lease

A mortgage clause that passes control of leases on an income-producing property to the lender. Often a condition to making a loan to ensure that, in case of mortgage default, any continuing income from the property goes directly to the lender.

Assumption (of Mortgage)

The transfer of the seller's existing mortgage to the buyer.

Attorney In Fact

One who is authorized to act for another under a power of attorney which may be general or limited in scope.

Example : John wants to sell his house but has to be out of the country for 4 months. John gives authorization to Mary to sign the grant deed to sell the property to a buyer. Mary becomes John's Attorney In Fact.

Attorney's Opinion of Title (In Absence of a Title Company)

A statement issued by an attorney in states that don't use a preliminary title report or title commitment. All liens recorded against the property are disclosed in this statement. The attorney also advises on items that require completion to gain a clear title insurance policy before recording a security instrument.

-B-

Back-End Debt Ratio

This refers to the borrower's debt ratio and is calculated using a borrower's total monthly payments due on credit obligations divided by the borrower's gross monthly income. It's expressed as a percentage.

Balloon Mortgage

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Example : A balloon mortgage for $25,000 has interest only payments for 5 years at 12% ($250 per month), with the full principal of $25,000 due and payable after 5 years.

Balloon Payment

A lump sum payment of the unpaid balance of the loan

Bankruptcy

The financial inability to pay one's debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual's credit report for 7 years.

Basis Point

One one-hundredth of one percent. Used to describe changes in yield on debt instruments, including mortgages. For example, 10 basis points equals 0.001.

Beneficiary

The person who receives or is to receive the benefits resulting from certain acts.

Example : The lender is named as the beneficiary on a mortgage loan.

Example : John has a life insurance policy for $100,000 with Jane as his beneficiary. Should John die - Jane will receive the benefits i.e. $100,000.

Beneficiary's Demand

Written instructions by a beneficiary under a deed of trust or mortgage stating and demanding the amount necessary for payoff of a lien in full.

Binder

Definition #1: A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder.

Definition #2: Preliminary agreement, normally secured with earnest money, between a buyer and a seller as an offer to purchase real estate.

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 mortgage covering more than one piece of property.

Example : A developer subdivides a tract of land into lots and obtains a blanket mortgage on the whole tract.

Bond

1. A debt instrument in the capital markets. The U.S. government, corporations and municipalities use bonds to raise money. Bonds can also be backed by mortgages. The best known bond is the 30 yr. treasury bond issued by the U.S. government.

2. A sum of money given to a court to guarantee against a loss. For example if there is a lien on a property, the owner may remove the lien by posting a bond.

Borrower (Mortgagor)

One who applies for a loan secured by real estate and is responsible for repaying the loan (mortgage).

Bridge Loan

An interim loan typically used when the buyer is unable to sell his/her house but needs money to close the transaction on the house he/she is buying. The bridge loan is made on the buyers current residence to finance the buyers new residence. The loan is paid off when the buyers current residence is sold.

Buydown

Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify . This is because a buydown results in lower payments which are easier to qualify for.

Example : A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9%, the buydown results in the rate being 7% (9%-2%) for the first year, 8% (9%-1%) for the second year, and 9% thereafter.

Buyers Broker

An agent hired by a buyer to locate a property for purchase. The broker represents the buyer and negotiates with the sellers broker for the best possible deal for the buyer.

Buyers Market

Market conditions that favor buyers i.e. there are more sellers than buyers in the market. As a result buyers have ample choice of properties and may negotiate lower prices. Buyers markets may be caused by an economic slump or overbuilding.

Bylaws

A set of regulations by which an organization conducts its business.

Example : A condominium association prepares bylaws that state the minimum number of owners to conduct a meeting to decide policies.

-C-

Cap

A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.

Capacity

A borrower's financial ability to repay debt. See the 3 Cs of Credit for more detailed information.

Call Provision

A clause in the mortgage or deed of trust giving the mortgagee or beneficiary the right to accelerate payment of he mortgage debt in full on a certain date or on the happening of specified conditions.

Capital Asset

Permanent property used to produce income, such as land, buildings and machinery.

Capital Gains

Profit earned from the sale of real estate. A seller may defer taxes on the capital gain of his/her primary residence by buying a higher priced residence within 2 years.

Capital Loss

The loss derived from the sale of a capital asset. May be short-term or long-term.

Cap (on Interest)

Consumer safeguard which limits the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Cap (on Payment)

Consumer safeguard which limits the amount monthly payments on an adjustable rate mortgage may change.

Cash Equivalent Value
A method of calculating the appraised value of a property that considers sales and financing concessions when evaluating comparable property. There is no standard in the appraisal industry for measuring cash equivalent value, but investors and mortgage insurers sometimes insist that cash equivalency be incorporated in the appraised values.

Cash Flow

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).

Cash Market
A market where mortgage and/or mortgage-backed securities are bought and sold for immediate delivery and cash payment. Also called a spot market.

Cash Out

Receiving money back when refinancing your present mortgage.

Cash-Out Explanation Letter

A handwritten, signed and dated letter provided by borrowers who are receiving cash from a refinanced loan transaction. The letter explains how they intend to use that cash. Generally used to verify that borrowers do not intend to use the cash to incur additional debt that will add to their monthly obligations and decrease disposable monthly income.

Cash Reserve

A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

Caveat Emptor

A legal term meaning "let buyer beware". The buyer must examine the property and buy at his/her own risk.

Example : A property may be offered in an "as is" condition with no expressed or implied guarantee of quality or condition.

CC&R's - Covenants, conditions, and restrictions

The basic rules establishing the rights and obligations of owners of real property within a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized for the purpose of operating and maintaining property commonly owned by the individual owners. The association is normally made up of property owners.

Ceiling

The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Eligibility

The document issued by the Veterans Administration to those that qualify for a VA loan which may be used to buy a house with 0 down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Certificate of Reasonable Value (CRV)

An appraisal performed by an VA approved appraiser which establishes the property's current market value. This value establishes the ceiling on the maximum VA mortgage loan principal.

Certificate of Occupancy

Document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to closing the loan.

Certificate of Title

An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not the same level of protection as title insurance.

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affair that establishes the maximum value and loan amount for a VA guarantee mortgage.

Certified Copy

A copy of an original attested to be a true and exact duplicate of the original.

Certified Mortgage Banker (CMB)

A professional designation in the mortgage banking industry.

Chain of Title

The chronological order of conveyance of a parcel of land from the original owner to the present owner.

Example : An abstractor can research title to property going back to the date that the property was granted to the United States.

Change Date

This is a date established with an adjustable rate loan contract when a new interest rate will be assessed. Also known as an adjustment date.

Chapter 7 Bankruptcy

A Chapter 7 BK is a straight liquidation bankruptcy where the debtor submits all of his or her non-exempt assets to a trustee for liquidation; proceeds are disbursed to creditors.

Chapter 13 Bankruptcy

Chapter 13 BK is a debt reorganization plan where debts are repaid under a court-supervised repayment plan. Debtors submit part of their income for distribution among creditors. Also known as the wage-earner plan.

Charge-off

A delinquent credit account with a balance owed that was never fully satisfied and the creditor removed it from the books for accounting purposes even though the debtor still owes payment in full.

Clear Title

A marketable title, free of clouds and disputed interests. Most lenders require a clear title prior to closing.

Collateral

Property pledged to secure a loan.

Closing

1. The act of transferring ownership of a property from seller to buyer in accordance with a sales contract.

2. The time when a closing takes place.

Closing Costs

Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types of costs : recurring and non recurring.

Non-recurring costs are one time transactional 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
Property taxes if due
Hazard insurance, fire insurance or homeowners insurance has to be paid for one year
Mortgage insurance (PMI) - may be required if the loan amount is more than 80% of the value of the property. In the past a whole year of PMI had to be paid up front, however in recent years many PMI companies only require 1-2 months up front. Mortgage insurance premiums are normally paid every month with the loan payment
Impound account may need money to be set up for future payments

Cloud on Title

An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title. Compare with clear title.

Closing Statement

A statement required by federal law (the Real Estate Settlement Procedures Act) that itemizes all changes imposed on the borrower and seller (if any) in connection with a mortgage-secured loan transaction. Also known as a Settlement Statement, HUD-1 or HUD-1A.

Co-Borrower

A second borrower on a loan who shares equal responsibility for repayment of the loan.

Co-Mortgagor

A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the mortgagor's for underwriting and ratio analysis purposes.

Co-Signer

One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property; his or her income and obligations are used in the underwriting process to reinforce the credit of the primary borrower.

Collateral

Property pledged by the borrower to secure the repayment of the loan. The lender's claim or lien appears on the title report for the property.

Combined Monthly Housing Expense

Monthly expenses for the individual's primary residence, which include rent or mortgage payments, other financing, hazard and flood insurance, mortgage insurance, real estate taxes, utilities and homeowner association dues.

Commitment (Letter)

A written document provided by a lender to agreeing to make a loan on specific terms to a borrower or builder.

Community Home Buyer's Program

An alternative financing option that allows households of modest means to qualify for mortgages using nontraditional credit histories, 33 percent housing-to-income and 38 percent debt-to-income ratios, and the waiver of the usual two payments cash reserves at closing.

Commitment Fee

Any fee paid up front (usually by an individual builder or developer) to the lender for the purpose of holding mortgage funds for a specified date.

Commitment Letter

A written agreement between the lender and the borrower stating the terms under which the lender agrees to loan money to the borrower.

Community Home Improvement Mortgage Loan

An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs.

Community Land Trust Mortgage Loan

An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a non-profit Community Land Trust, and to lease the land on which the property stands.

Comparables (Comps)

Properties used to determine the value of a specific property for comparative purposes in the preparation of an appraisal.

Compensating Factors

Positive characteristics about an applicant's credit, employment history, etc. that contribute to a loan being a sound risk or investment.

Condemnation

1. Taking private property for a public use with compensation to the owner under eminent domain. Used by governments to acquire land for streets, schools, freeways, etc and by utilities to acquire necessary property.2. Declaring a structure unfit for use because of violations in housing codes or other reasons.

Conditional Commitment

A written document provided by a lender agreeing to make a loan provided certain conditions are met prior to closing.

Condominium

Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.

Conforming Loan

Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

Construction loan

A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.

Consideration

Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration.

Consumer Credit

Credit owed by an individual that is not secured by real estate.

Contingency

Conditions which must be satisfied before the buyer can close the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller.

Example : The buyer has 14 days to remove the property contingency under the sales contract. In this case the buyer has 14 days to inspect the property and request the seller to perform repairs. If the buyer is not satisfied with the condition of the property or if the buyer and the seller cannot agree on repairs, the buyer may back out of the contract with no penalty. After 14 days the buyer no longer has the right to back out with no penalty as a result of a problem with the condition of the property.

Contract

An agreement between competent parties to do or not do certain things for consideration.

Example : To have a valid contract for the sale of real estate there must be :

an offer
an acceptance
competent parties
consideration
legal purpose
written documentation
description of the property
signatures by principals or their attorney-in-fact

Contract Sale or Deed

A real estate installment selling arrangement where the buyer may occupy the property but the seller retains the title until the agreed upon sales price has been paid. Also known as an installment land contract.

Example : John sells Mary a house. Mary has to put $10,000 and pay $1,000 per month for 24 months, after which time she will receive title to the property.

Conventional Loan

Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming.

Conventional Mortgage

Any mortgage that is not insured or guaranteed by the federal government.

Conversion Clause

A provision in some Adjustable Rate Mortgages that permit converting the ARM to a fixed rate loan under specified conditions at a predetermined time. Sometimes available for an additional cost.

Convertible ARMs

Some variable loans come with options to convert them to a fixed loan based on a pre-determined formula, during a given time period. For example the 1 yr tbill adjustable may be converted to a fixed during the first five years on the adjustment date. The means that you could convert during the 13th, 25th, 37th, 49th and 61th months of the loan.

Conveyance

The transfer of title of real from one party to another.

Co-op; Cooperative

An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cosmetic Repair

Repairs that improve the appearance of the property and are considered aesthetically pleasing to the eye.

Cost Approach to Value

A valuation approach in which the value of a property is determined by computing the replacement value of improvements, depreciation and the value of the land.

Coupon Book

A book of pre-printed coupons furnished to the borrower. One coupon is returned each month with a check or money order, enabling the mortgage servicer to identify the payment by name, loan number and type of loan.

Covenant

A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

Credit Authorization Letter

A letter signed by the borrower that authorizes a lender to conduct a credit investigation.

Credit Limit

The maximum amount that you can borrow under a home equity plan.

Credit Report

A report detailing a borrowers credit history including payment history on revolving accounts (eg. credit cards) and installment accounts (e.g.. car loan). A credit report also includes information found from public records including tax liens and judgements.

Credit Bureau

A company that collects and organizes information about an individual's credit and payment habits. The three national credit bureaus are Experian, TransUnion and Equifax.

Credit Depth

The number of years a borrower has had established credit. This information shows up on the borrower's credit report.

Credit History

The history of whether the borrower has met financial obligations on time in the past.

Credit Length

The length of time a borrower has had established credit.

Credit Report

A report prepared by a credit bureau that provides a detailed account of a borrower's Credit History.

Credit Score/Rating

A numerical assessment assigned to the individual by credit bureaus that represents a measurement of the individual's overall credit rating. The scores are weighted and range from approximately 365 to 840. Low scores reflect a "high risk," while higher scores reflect a "lower risk." Each credit bureau has its own credit score system.

Date Down Addendum

An update to the preliminary title report/title commitment that reflects any changes to the title since the original title report was prepared. Same as an update addendum.

-D-

Debt Consolidation Loan

A loan that combines debt obligations into one debt.

Debt Load

The total amount of debt an individual currently owes.

Debt Service

The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Debt-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).

Deed

A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing.; Back to top; A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.; Deed of Reconveyance
A document used to transfer legal title from the trustee back to the borrower after a debt secured by a deed of trust has been paid in full.; Back to top; Used in many states in lieu of a mortgage to secure the payment of a note. In a deed of trust there are three parties: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he/she defaults in the payment of the debt, the trustee may sell the property without a court proceeding.; Back to top; A clause in a deed that limits the use of land.; Example : A deed might require that a road cannot be built on the land.; Back to top; Failure to meet legal obligations in a contract - such as the failure to make the monthly mortgage payment.; Deferred Maintenance
Repairs necessary to restore a property to good condition.; Back to top; Any recorded instrument that would prevent a grantor/seller from giving a clear title.; Example : The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien.; Back to top; Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc.; Back to top; Failure to make payments on time. Can lead to foreclosure.; Back to top; The final, unconditional and absolute transfer of a deed to the Grantee so that the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not pass title.; Back to top; Back to top; Back to top; An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.; Back to top; Cash paid to the seller when a formal sales contract is signed.; Back to top; Decline in the value of a house due to wear and tear, obsolescence, adverse changes in the neighborhood, or any other reason.

Discharge

Following a completed bankruptcy proceeding, discharged debts are no longer enforceable. The individual has successfully completed the process and debtors are either paid in full or eliminated based on the plan.

Discount

The difference between face value of an installment note and mortgage or deed of trust, and the present cash value.

Discount Points

Fees paid to a lender to reduce the interest rate.

Documentary Tax Stamps

Stamps affixed to a deed showing the amount of transfer tax.

Dower

The rights of a widow or child to part of a deceased husband's or fathers property.

Down Payment

The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs.

Example : John buys a house for $100,000 and obtains a loan for $80,000. His down payment is $20,000.

Dragnet Clause

A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.

Due on Interest

A clause inserted in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC Mortgage

Due on Sale Clause

A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.

-E-

Earnest Money

A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow company.

Easement

The right to use the land of another for a specific purpose. Easements may be temporary or permanent.

Example : The utility company may need an easement to run electric lines.

Effective Age
Age of a structure based on its present condition rather than actual age. Takes into account rehabilitation and maintenance.

Encumbrance

A claim, lien, charge or liability attached to and binding real property. Any right to, or interest in, land that may exist in one other than the owner, but that will not prevent the transfer of fee title subject to such encumbrances.

Effective Interest Rate

The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Eminent Domain

The right of the government or a public utility to acquire property for necessary public use by condemnation, with proper compensation to the owner.

Encroachment

A building, a part of a building, or an obstruction (e.g.. a fence or a wall) that physically intrudes upon or overlaps into the property of another.

Encumbrance

A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Entitlement

The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

Equal Credit Opportunity Act (ECOA)

Is 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

Equity = Property Value - Loans/Liens Against the property.
Equity is typically expressed as a percentage of the property value.

Equity Loan

A loan based on the borrower's equity in his or her home.

Equity Sharing

Joint ownership of a property between the owner/occupant and the owner/investor, that results in tax advantages for both parties. Upon sale of the property the joint owners split profits based on the percentage they own.

Escheat

The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.

Escrow

1. Neutral third party that handles all funds in a real estate transaction. The buyer puts his deposit into escrow, the lender funds the loan into escrow. Escrow pays the real estate brokers commission, pays off any loans/liens against the property, pays real estate taxes and any other fees associated with the transaction and sends the balance of the money to the seller.

2. Escrow payment

Estate (Real Property)
Describes the extent and character of a person's rights and interest in real property. Two types of estates frequently financed by mortgage lenders are the fee simple and the leasehold estate.

Executor (Executrix - feminine for Executor)

A person named in a will to carry out its provisions for the disposition of the estate.

Experian (EXP)

A national credit bureau from which lenders can order credit reports.

-F-

External Obsolescence

Any influence negatively affecting a property's value that falls outside of the specific property site. An example of this would be a property located under an airport flight pattern.

Back to top; A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.; Fair Market Value
The price determined to convey title by the seller to the buyer where neither party is under any obligation to buy or sell and both parties have a reasonable knowledge of pertinent data.; Back to top; An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas.; Federal Deposit Insurance Corporation (FDIC)
Originally established by the Banking Act of 1933 to protect depositors from loss. As a result of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the FDIC administers the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).; Back to top; Purchases loans from lenders, securitizes them and sells FNMA mortgage backed securities on wall street.; Provides financing to farmers.; Back to top; Purchase loans from members of the Federal Reserve and the Federal Home Loan Bank Systems, securitizes them and sells FHLMC mortgage backed securities on wall street.; Back to top; An agency within the U.S. Department of Housing and Urban Development (HUD) that administers loan programs, issues loan guarantees to make more housing available.; Back to top; The central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy.; Back to top; Back to top; Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owners life and upon his death the property descends to the owner's designated heirs.; Back to top; a loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($124,875), they are generous enough to handle moderately-priced homes almost anywhere in the country.; Back to top; Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.; Back to top; An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds.; Example : A landlord employs a clerk who collects rents. To safeguard these funds during the collection process, the landlord purchases a fidelity bond the clerk.; Back to top; A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A real estate broker is a fiduciary for his/her clients.; Interest charged by a lender.; Back to top; A promise by FHA to insure a mortgage loam for a specified property and borrower. A promise from a lender to make a mortgage loan.; A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages.

First Position Lien

A secured claim against a property that will be the first claim to be repaid should the property owner someday declare bankruptcy or default on the secured loan.

Fixed Rate Mortgage

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Fixture

Improvements or personal property attached to the land so as to become a part of the real estate. Fixtures are transferred to the buyer upon sale of the property. To determine whether an item is a fixture include :

Intent (was it intended to be part of the property)
How is it fixed ?
Is the fixture essential to the property ?
Relationship - was the fixture intended to be a part of the tenant's business ?

Example : John sells his house to Mary. John wants to take the chandelier because he states it is personal property. Mary wants the chandelier to stay because she believes it is a fixture.

Float
A borrower's decision not to lock an interest rate while a mortgage loan is being processed. A loan is considered to be a float until an interest rate is locked.

Flood Insurance

An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone.

Floor
The lowest an adjustable-rate mortgage rate can ever be during the life of the loan.

Forbearance

The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

Foreclosure (Repossession)

A legal process by which the lender forces a sale of a property because the borrower has not met the terms of the mortgage.

Free and clear

A property that has no liens.

FSBO

For sale by owner. A property for sale that is not listed with a real estate broker.

Fully Indexed Rate

The fully indexed rate = value of the index + margin.

Front-End Debt Ratio

This refers to the debt ratio calculation using only principal, interest, tax and insurance divided by gross monthly income. It's expressed as a percentage.

Fully Indexed Rate

The fully indexed rate is equal to the rate index plus the loan's margin and is used with adjustable-rate mortgages. Example: If LIBOR is 6.50% and the margin on the loan is 4.00%, the fully indexed rate is 10.50%. Same as the

Functional Obsolescence

Anything about the design or construction of a property that negatively affects its value. An example of this would be a property with five bedrooms and only one bathroom.

Back to top; A deed in which the grantor (seller) agrees to the protect the grantee (buyer) against any other claim to title of the property.

Gift Letter

A letter to the lender from the donor stating that a gift of money has been made to the buyer in order to purchase specific property. The relationship of the donor and buyer is stated, as well as the amount of the gift.

Good Faith Estimate

A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Government National Mortgage Association (GNMA)

A government agency part of HUD that buys VA and FHA loans from lenders, securitizes them and sells Ginnie Mae securities to investors

Graduated Payment Mortgage (GPM)

A mortgage loan in which the mortgage payments increase for a specified period of time and then level off.

Grace Period

A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Grandfather Clause

The clause in a law permitting the continuation of a use, business etc., which, when established, was permissible but, because of a change in the law, is now not permissible.

Grant Deed

A written instrument used to transfer or convey real property. A grant deed contains warranties against prior conveyances or encumbrances.

Grantee

That party in the deed who is the buyer or recipient.

Grantor

That party who is the seller or the giver.

Graduated Payment Mortgage (GPM)

A mortgage that has lower payments initially (with potential negative amortization) which increase each year until the loan is fully amortized.

Grandfather Clause

The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible.

Gross Income

For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Guaranty

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

-H-

Hazard Insurance (Fire Insurance, Homeowners insurance)

Insurance on a property against fire and other risks. A homeowners policy may have additional coverage for theft, liability, etc that a fire insurance policy may not cover.

Holdback

A portion of a mortgage loan held back by the lender from the borrower until a contingency is met by the borrower. An example of a contingency would be repairs needed for a property's roof. Upon completion of the required repairs, the lender releases the held-back funds to the borrower.

Back to top; An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.

Home Mortgage Disclosure Act (HMDA)

This act requires all mortgage companies to report selected information to the federal government about each application received. HUD (U.S. Department of Housing and Urban Development) uses HMDA to detect discrimination and identify trends in lending patterns.

Homeowners Insurance

An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.

Homeowner's warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Home Equity Line of Credit

A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan

A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.