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.
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 (return to top)
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.
Fair Credit Reporting Act (return to top)
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 congressionally chartered, shareholder-owned company that is the
nation's largest supplier of home mortgage funds.
Fannie Mae's Community Home Buyer's Program
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.
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.
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.
first mortgage
A mortgage that is the primary lien against a property.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the
entire term of the loan.
flood insurance
Insurance that compensates for physical property damage resulting
from flooding. It is required for properties located in federally
designated flood areas.
foreclosure (return to top)
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 mrotgage debt.
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.
good faith estimate
An estimate of charges which a borrower is likely to incur in connection
with a settlement.
hazard insurance (return to top)
Insurance protecting against loss to real estate caused by fire,
some natural causes, vandalism, etc., depending upon the terms of
the policy.
housing ratio
The ratio of the monthly housing payment in total (PITI - Principal,
Interest, Taxes, and Insurance) divided by the gross monthly income.
This ratio is sometimes referred to as the top ratio or front end
ratio.
HUD
The U.S. Department of Housing and Urban Development.
index (return to top)
A published interest rate to which the interest rate on an Adjustable
Rate Mortgage (ARM) is tied. Some commonly used indeces include
the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost
of Funds (COFI).
lien (return to top)
An encumbrance against property for money due, either voluntary
or involuntary.
lifetime cap
A provision of an ARM that limits the highest rate that can
occur over the life of the loan.
loan to value ratio (LTV)
The ratio of the amount of your loan to the appraised value
of the home. The LTV will affect programs available to the borrower
and generally, the lower the LTV the more favorable the terms of
the programs offered by lenders.
lock-in
A written agreement guaranteeing the home buyer a specified
interest rate provided the loan is closed within a set period of
time. The lock-in also usually specifies the number of points to
be paid at closing.
margin (return to top)
The number of percentage points a lender adds to the index value
to calculate the ARM interest rate at each adjustment period. A
representative margin would be 2.75%.
mortgage
A legal document that pledges a property to the lender as security
for payment of a debt
mortgage disability insurance
A disability insurance policy which will pay the monthly mortgage
payment in the event of a covered disability of an insured borrower
for a specified period of time.
mortgage insurance (MI)
Insurance written by an independent mortgage insurance company
protecting the mortgage lender against loss incurred by a mortgage
default. Usually required for loans with an LTV of 80.01% or higher.
mortgagee
The person or company who receives the mortgage as a pledge
for repayment of the loan. The mortgage lender.
mortgagor
The mortgage borrower who gives the mortgage as a pledge to
repay.
non-conforming loan (return to top)
Also called a jumbo loan. Conventional home mortgages not eligible
for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac
(FHLMC) because of various reasons, including loan amount, loan
characteristics or underwriting guidelines. Non-conforming loans
usually incur a rate and origination fee premium.The current non-conforming
loan limit is ,601 and above.
note
A written agreement containing a promise of the signer to pay
to a named person, or order, or bearer, a definite sum of money
at a specified date or on demand.
origination fee
A fee imposed by a lender to cover certain processing expenses
in connection with making a real estate loan. Usually a percentage
of the amount loaned, such as one percent.
owner financing (return
to top)
A property purchase transaction in which the property seller
provides all or part of the financing.
Planned Unit Developments (PUD)
A subdivision of five or more individually owned lots with one
or more other parcels owned in common or with reciprocal rights
in one or more other parcels.
PITI
Principal, interest, taxes and insurance--the components of
a monthly mortgage payment.
points
Charges levied by the mortgage lender and usually payable at
closing. One point represents 1% of the face value of the mortgage
loan.
prepaids
Those expenses of property which are paid in advance of their
due date and will usually be prorated upon sale, such as taxes,
insurance, rent, etc.
prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants
to pay off part or all of a mortgage loan in advance of schedule.
principal
Amount of debt, not including interest. The face value of a
note or mortgage.
private mortgage insurance (PMI)
Insurance provided by nongovernment insurers that protects lenders
against loss if a borrower defaults. Fannie Mae generally requires
private mortgage insurance for loans with loan-to-value (LTV) percentages
greater than 80%.
qualifying ratios
The ratio of your fixed monthly expenses to your gross monthly
income, used to determine how much you can afford to borrow. The
fixed monthly expenses would include PITI along with other obligations
such as student loans, car loans, or credit card payments.
rate cap
A limit on how much the interest rate can change, either at
each adjustment period or over the life of the loan.
rate lock-in (return to top)
A written agreement in which the lender guarantees the borrower
a specified interest rate, provided the loan closes within a set
period of time.
rebate
Compensation received from a wholesale lender which can be used
to cover closing costs or as a refund to the borrower. Loans with
rebates often carry higher interest rates than loans with "points"
(see above).
refinancing
The process of paying off one loan with the proceeds from a new
loan using the same property as security.
residential mortgage credit report (RMCR)
A report requested by your lender that utilizes information from
at least two of the three national credit bureaus and information
provided on your loan application.
seller carry back (return to top)
An agreement in which the owner of a property provides financing,
often in combination with an assumed mortgage.
survey
A print showing the measurements of the boundaries of a parcel of
land, together with the location of all improvements on the land
and sometimes its area and topography.
tenants-in-common (return to top)
An undivided interest in property taken by two or more persons.
The interest need not be equal. Upon death of one or more persons,
there is no right of survivorship.
title
The evidence one has of right to possession of land.
title insurance
Insurance against loss resulting from defects of title to a specifically
described parcel of real property.
title search
An investigation into the history of ownership of a property to
check for liens, unpaid claims, restrictions or problems, to prove
that the seller can transfer free and clear ownership.
total debt ratio
Monthly debt and housing payments divided by gross monthly income.
Also known as Obligations-to-Income Ratio or Back-End Ratio.
Truth-in-Lending Act (return
to top)
A federal law requiring a disclosure of credit terms using a standard
format. This is intended to facilitate comparisons between the lending
terms of different financial institutions.
Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment
to qualified veterans.
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