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Glossary

Mortgage and finance terminology can sometimes be confusing. Here are a few common terms and their meanings.

A & D Loan
Acquisition and Development Loans are used in purchasing and developing raw land with the intent of future development.

Abstract of Title
A written history of ownership showing verification or non-verification of title.

Acceleration Clause
Requires the balance of a loan to become due immediately. Occurs when regular payments are not made.

Acquisition Cost
The price to obtain property, including purchase price and all nonrecurring closing costs, including discount points, FHA application fee, service charge, credit report, FHA appraisal, escrow, document preparation, title insurance, termite inspection, reconveyance and recording fees for FHA-insured loans.

Ad Valorem
A Latin phrase used to describe a tax charged in relation to the value of the property taxed meaning "according to value".

Adjustable Rate Mortgage (ARM)
A loan with an adjusted interest rated determined by a pre-selected index.

Adjustment Period
The period between adjustments of an ARM interest rate.

All-inclusive Trust Deed
Overriding trust deed; A financing tool where a lender assumes payments on an existing mortgage or trust deed and takes from the borrower a trust deed with a face value in an amount equal to the amount due on the old instrument and the additional amount of money borrowed.

Amortization
A financial obligation paid in installments; An amortized loan includes both principal and interest, usually due monthly, resulting in complete payment of the amount borrowed, with interest, by the end of the loan term.

Annual Percentage Rate (APR)
The cost of credit including interest, loan fees and discount points stated as an annual percentage.

Appraisal
A licensed appraiser's estimate of a property's monetary value on the open market; Justifies the contract purchase price.

Arrearages
The total delinquent principal, interest, taxes and insurance owed.

Balloon Payment
An installment payment on a loan that is usually a larger payment and due on a specified date.

Bond
Real Estate Bond. An obligation issued on security of a mortgage or trust deed.

Cap
A limit on interest rate fluctuation on an adjustable rate.

Certificate of Reasonable Value
Property appraisal necessary for a VA-guaranteed loan.

Certificate of Redemption
Certificate issued by the county tax collector verifying payment of all past due obligations.

Chattel Mortgage
Using personal property to guarantee a promissory note.

Closing
The ending of a real estate transaction resulting in title and fund conveyance.

Closing Costs
Expenses resulting from the closing of a real estate mortgage loan.

Closing Statement
Also known as a HUD-1 statement. Provides a listing of all funds payable at closing.

Cloud on Title
Encumbrance which affects the title marketability.

Compound Interest
Interest payable on the principal loan amount and accrued interest.

Conventional Loan
A secured loan that is not insured by FHA and VA loans.

Cost Approach
An Appraisal method to determine market value calculated by adding value less depreciation to the replacement value.

Deed
A legal document conveying title to real property.

Debt to Income Ratio
Ratio comparing total monthly obligations, including home loan payments, to total monthly gross income.

Discount Points
Fee charged by the lender to decrease the interest rate on a loan.

Due on Sale Clause
Mortgage provision stating that the entire note balance is due if the borrower sells the property.

Easement
The right and use to a specific piece of land owned by someone else.

Encroachment
A property improvement that unlawfully intrudes on another's property.

Equity
Calculated by subtracting the balance owed on a home from the market value.

Escrow
The holdings of documents or funds by a neutral third party on the behalf of the borrower pending the closing of a loan or payment of real estate taxes, insurance and any such agreements of a contract.

Escrow Impounds
Money paid at loan settlement and with monthly loan payments for the purpose of paying future real estate taxes and homeowners insurance.

Escrow Waiver
The borrower's request to not pay taxes and insurance through impounds. Equity positions play a role in the decision.

Fair Credit Reporting Act
Law protecting consumers that establishes procedures to correct errors on credit reports and gives consumers specific rights in dealing with credit reporting agencies.

Fannie Mae (FNMA)
The Federal National Mortgage Association. It purchases, sells and guarantees conventional, VA or FHA mortgages.

Federal Home Loan Mortgage Corporation (FHLMC)
Purchases conventional mortgage loans in the secondary mortgage market.

Federal National Mortgage Association (FNMA)
Purchases mortgage loans from primary lenders in the secondary mortgage market.

Federal Truth In Lending Act
Requires disclosures about terms and costs intended to give consumers cost vs. credit comparisons.

FHA
Federal Housing Authority. Provides home loan insurance for FHA loans.

Fico Score
Enables a credit grantor to identify credit prospects with the best credit opportunities.

Fixed Rate Mortgage
The interest rate on a loan that remains constant throughout the entire term.

Floating Interest Rate
The interest on a loan before it is guaranteed by a lender.

Gift Letter
A signed letter or statement from an individual providing a cash gift to a borrower in order to qualify for a loan. The letter or statement states that the cash gift does not have to be repaid.

Ginnie Mae
Government National Mortgage Associations works with FHA facilitating efficient secondary market activities for federally insured or guaranteed mortgages.

Graduated Payment Mortgage (GPM)
A mortgage based on payments that will be increased over time dependent on a predetermined schedule.

Gross Income Multiplier
Using the gross annual income of a property to calculate an estimate of a property's value.

Good Faith Estimate
A document prepared by the lender showing borrowers the estimated cost they will incur payable at closing.

Hazard Insurance
Insurance policy placed on property improvements that covers damage by fire or other natural disasters.

HUD
The United States Department of Housing and Urban Development. Responsible for all facets of the federal housing and urban development programs.

Index
A factor used to calculate the interest on an adjustable rate mortgage.

Inheritance Taxes
Taxes on real and personal property received through an inheritance.

Jumbo Loan
A home loan that is monetarily more than the limits of Freddie Mac or Fannie Mae.

Land Contract
A contract used in a real property sale where the seller keeps the title to the property until the sales price has been paid.

Leverage
Use of debt financing to purchase an investment.

Lien
A legal hold against the property as security for the payment of a debt, mortgages, judgments or taxes.

Loan to Value Ratio
Ratio reflecting the mortgage loan amount to the appraised value or purchase price of a home.

Market Value
The highest price that a buyer is willing to pay and the lowest price that a seller is to accept for real estate.

Marketable Title
Enables an owner to sell property without objection. It is free of any clouds.

Mortgage
A guarantee of real estate from a borrower as security for the payment of a loan to a lender.

Mortgage Insurance
Insures the lender against non-payment of a government or conventional loan.

Mortgagee
The lender for a home loan.

Mortgagor
The borrower in a home loan.

Negative Amortization
A loan schedule in which the principal increases due to a payment that does not cover all of the interest.

Notice of Default
Written notice to a borrower showing default on a mortgage.

Origination Fee
Lender's fee for processing and underwriting loan documents. Usually 1 point or 1%.

PITI
Principal, interest, taxes and insurance, which combined make a monthly mortgage payment.

Points
A one-time payment to lower the interest rate on a mortgage.

Prepaid Interest
The interest charged at closing calculated to pay for the cost of borrowing for the remainder of the month.

Prepayment Penalty
Fee paid by the borrower if loan is paid before its due date.

Pre-qualification
A non-binding opinion of how much a borrower will be qualified to borrow.

Private Mortgage Insurance (PMI)
Insurance required by lender from a non-governmental insurer if down payment is less than around 20%.

Real Estate Settlement Procedures Act (RESPA)
Requires advance disclosure to consumers about mortgage loan settlements.

Redlining
The illegal practice of lending institutions denying loans to certain areas of a community.

Refinancing
The borrower pays off one loan with another.

Reverse Annuity Mortgage (RAM)
The homeowner receives monthly payments based on accumulated equity. The loan must be repaid at a prearranged date or upon the death of the owner or the sale of the property.

Right of Recission
The borrowers right to cancel a mortgage refinance transaction within three days from the date the settlement documents were executed.

Sales Comparison Approach
The construction and locations of homes comparable to the subject home are used to form an appraisal.

Satisfaction
Paying and being released from an obligation in its' entirety before the end of the term.

Second Mortgage
Mortgage that has a lien position second to a first mortgage.

Secondary Mortgage Market
Market in which investors buy and sell existing mortgages.

Security Instrument
The deed of trust or mortgage verifying the pledge of real property as security for the repayment of the debt.

Servicing
The operational procedures related to the collection of home loan payments and other payments related to mortgage loans.

Shared Appreciation Mortgage (SAM)
Loan in which the lender participates in any profits when the property is sold.

Simple Interest
Interest payable on the principal amount of the loan only.

Subrogation
Substituting the legal rights and claims from one creditor to another.

Suspended
A loan can neither be approved nor denied. More information is needed.

Takeout Loan
Loan in which the lender provides financing to the builder or developer upon completion of construction.

Temporary Buydown
Money paid at closing to temporarily reduce the interest rate for the first and second year of the mortgage.

Title Insurance
Insurance policy protecting owner or lender against loss affecting title.

Title Search
An examination of public records to determine legal ownership of property.

Usury
Charging an interest rate greater than the rate permitted by law.

Underwriting
Analyzing a homebuyer's ability to repay a home loan.

VA Loan
A home loan guaranteed by the Department of Veterans Affairs. Enables a veteran to buy a home with no money down.

VOD
Verification of Deposit

VOM
Verification of Mortgage

VOE
Verification of Employment

Wraparound Mortgage
A loan in which a new loan is added to the existing first mortgage loan.



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