Glossary

 

 

 

Welcome to our mortgage glossary. Please find the following mortgage definitions which may be helpful to you below:

 

 

A 

 

 

Alt-A mortgage: A loan that can be underwritten with lower or alternative documentation than a full documentation mortgage loan but may also include other alternative product features.

Amortization: Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years).

 

Amortization schedule: A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

 

Annual Percentage Rate (APR): Calculated by using a standard formula, the APR shows the cost of a loan expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

 

Application: The first step in the official loan approval process. This form is used to record important information about the potential borrower necessary to the underwriting process. Appraisal: A document that gives an estimate of a property's fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

 

Appraiser: A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

 

Appreciation: The increase in the value of a property due to changes in market conditions, inflation, or other causes.

 

ARM or adjustable-rate mortgage: A mortgage loan with an interest rate that adjusts periodically over the life of the mortgage based on changes in a specified index.

 

Assessed value: The valuation placed on property by a public tax assessor for purposes of taxation.

 

Assessor: A government official who is responsible for determining the value of a property for the purpose of taxation.

 

 

B

 

 

 

Balloon Mortgage: A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years. After that time period elapses, the balance is due or is refinanced by the borrower.

 

Bankruptcy: A federal law where a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

 

Biweekly mortgage: A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage.

 

Bond market: Involves the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury bond market also affect mortgage rates at the same time. That is why rates can change daily. In a volatile market rates can change during the day as well.

 

Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

 

Bridge loan: Bridge loans are obtained by those who have not yet sold their previous property but need funds to close on a new property. The bridge loan becomes the source of their funds for the down payment.

 

Building code: Based upon pre-determined safety standards within a specific area. A building code is a regulation that determines the design, construction, and materials used in building.

 

Budget: A record of all income earned and spent during a specific period of time.

 

Buydown: Refers to a fixed rate mortgage where the interest rate is bought down for a temporary period of time which is usually one to three years. After that time the borrower's payment is calculated at the note rate. These loans usually require a lump sum to be paid at closing and held in an account used to supplement the borrower's monthly mortgage payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property.

 

 

C

 

 

Cap: A limit placed on an adjustable rate mortgage which determines how much a monthly payment or interest rate can increase or decrease.

 

Cash-out refinance: When a borrower refinances their mortgage for a greater amount than their current loan balance with the intention of pulling out money for personal use.

 

Cash reserves: A cash amount required by the lender to be held in reserve in addition to the down payment and closing costs.

 

Certificate of deposit index (CODI): One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

 

Certificate of Eligibility: A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.

 

Certificate of title: A document provided by a qualified source such as a title company that shows the property legally belongs to the current owner. The title should be free and clear of all liens or other claims before the title is transferred at closing.

 

Chain of title: A document which shows the transfers of title to a piece of property over the years. Charge-off: The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Clear title: A title that is free of all liens or legal questions as to ownership of the property.

 

Closing: A also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

 

Closing costs: Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing. These costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.

 

Closing statement: See HUD-1.

 

Cloud on title: Conditions revealed by a title search that adversely affect title to real estate. In most cases clouds on title cannot be removed except by deed, release, or court action.

 

Co-borrower: An additional individual who is both obligated on the loan and is on title to the property.

 

Community property: In some states, property that is acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances.

 

Comparable sales: Also known as “comps”, these are recent sales of similar properties in nearby areas and used to help determine the market value of a property.

 

Condominium: A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type 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. These are often found in resort areas.

 

Construction loan: Short-term interim financing that covers the cost of construction. The lender makes payments to the builder at periodic intervals (known as “draws”) as the work progresses.

 

Contingency: A condition that must be met before a contract is legally binding. For example, home purchasers will often include a contingency that states that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector

 

Conventional mortgage: A mortgage loan which is not guaranteed or insured by the U.S. government or its agencies, such as the VA, FHA or RHS.

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.

 

Cost of funds index (COFI): One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

 

Credit history: History of an individual's debt payment record which is used by lenders to gauge a potential borrower's ability to repay a loan.

 

Credit report: A detailed report that lists all past and present debts and the timeliness of their repayment. This report documents an individual's credit history.

 

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.

 

Credit scoring: A process that uses recorded information about individuals and their loan requests to assess in a quantifiable, objective, and consistent manner their future performance regarding debt repayment.

Credit bureau score: A numeric score representing the possibility that a borrower may default. This score is based upon credit history and is used to determine a borrower’s ability to qualify for a mortgage loan.

 

 

D

 

 

Debt-to-income ratio (DTI): A comparison of gross income to expenses expressed as a percentage which helps determine whether a borrower may be qualified for a loan.

 

Deed: The document that transfers ownership of a property.

 

Deed-in-lieu: To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

 

Deed of trust: Certain states like California do not record mortgages. Instead they record a deed of trust which in essence, is the same thing.

 

Default: The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.

Delinquency: A mortgage loan on which a payment has not been made by the due date.

 

Discount point: Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

 

Down payment: The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

 

 

E

 

 

Earnest money deposit: Funds submitted by a potential buyer to show that he or she is serious about purchasing a home. These funds become part of the down payment if the offer is accepted. They are returned if the offer is rejected. The earnest money deposit can be forfeited or lost if the buyer decides not to move forward after the contract is signed by both parties.

 

Encumbrance: Anything that affects or limits the fee simple title to a property. An encumbrance can be a mortgage, lease, easement, or restriction.

 

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 and other liens.

 

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 earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

 

Escrow account: a separate account into which the lender puts a portion of each monthly mortgage payment. An escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

 

Escrow analysis: Once a year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.

 

Escrow disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

 

 

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 Housing Act: A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

 

Fair market value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge.

 

Fannie Mae (FNMA): Federal National Mortgage Association (FNMA); A federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

 

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). Along with VA loans, an FHA loan will often be referred to as a government loan.

 

Firm commitment: Also known as the “commitment” - this is a lender's agreement to make a loan to a specific borrower on a specific property.

 

First mortgage: The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there can be exceptions.

 

Fixed-rate mortgage: A mortgage in which the interest rate does not change during the entire term of the loan.

 

Flood insurance: This is insurance that protects homeowners against losses from a flood. If a home is located in a flood plain the lender will require flood insurance before approving the loan.

 

Forbearance: The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

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.

 

Freddie Mac (FHLM): Federal Home Loan Mortgage Corporation. A federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors. This provides lenders with funds for new homebuyers.

 

 

G

 

 

Ginnie Mae (GNMA): Government National Mortgage Association. A government owned corporation overseen by the U.S. Department of Housing and Urban Development. Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment. Similar to Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

 

Good faith estimate (GFE): An estimate of all closing fees including pre-paid and escrow items as well as lender charges. This estimate must be provided to the borrower within three days after submission of a loan application.

 

Government loan (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). Mortgage loans that are not government loans are classified as conventional loans.

 

 

H

 

 

HELP: Homebuyer Education Learning Program. An educational program from the FHA that counsels people about the home buying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.

 

Home Equity Conversion Mortgage (HECM): Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. 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.

 

Home equity line of credit: A mortgage loan usually in second lien position that allows the borrower to obtain cash against the equity of their home, up to a predetermined amount.

 

Home inspection: An examination of the structure and mechanical systems to determine a home's safety which makes the potential homebuyer aware of any repairs that may be needed.

 

Home warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance. Coverage extends over a specific time period and does not cover the home's structure. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

 

Homeowner’s 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.

 

HUD: The U.S. Department of Housing and Urban Development. Established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

 

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 settlement statement: A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the HUD-1 statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet."

 

 

I

 

 

Index: A measurement used by lenders to determine changes to the interest rate charged on an adjustable rate mortgage.

 

Interest: A fee charged for the use of money.

 

Interest rate: The amount of interest charged on a monthly loan payment which is usually expressed as a percentage.

 

Intermediate-term mortgage: A mortgage loan with a contractual maturity at the time of purchase equal to or less than 15 years.

 

 

J

Joint tenancy: A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.

 

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.

 

Jumbo loan: A loan that exceeds Fannie Mae's and Freddie Mac's loan limits currently at $417,000. Also known as a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

 

 

L

 

 

Late charge: The penalty a borrower must pay when a payment is made after a stated number of days. On a first trust deed or mortgage, this is usually fifteen days.

 

Lease purchase: Assists low to moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

 

Lender: A term which can refer to the institution making the loan or to the individual representing the firm. For example loan officers are often referred to as "lenders."

 

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.

 

Lien: A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.

 

Life 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 mortgage.

 

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 servicing: The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.

Loan-to-value (LTV) ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased. The higher the LTV the less cash a borrower is required to pay as down payment.

 

Lock-in: An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

 

Lock-in period: The time period during which the lender has guaranteed an interest rate to a borrower. Margin: An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

 

 

M

 

 

Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

 

Merged credit report: A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.  

 

Modification: Any change to the original terms of a mortgage.

 

Mortgage: A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself.

Mortgagee: The lender in a mortgage agreement.

 

Mortgage insurance (MI): A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is generally required for borrowers with a down payment of less than 20% of the home's purchase price.

 

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 and disability insurance: A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. 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.

 

 

N

 

 

Negative amortization: Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

 

No cash-out refinance: A refinance transaction which is not intended to put cash in the hand of the borrower. Instead the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a "rate and term refinance."

 

No-cost mortgage loan: Many lenders offer loans that you can obtain at "no cost." You should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest

 

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

 

 

Offer:  Indication by a potential buyer of a willingness to purchase a home at a specific price which is generally put forth in writing. 

 

Origination:  The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal. 

 

Origination fee:  The charge for originating a loan.  It is usually calculated in the form of points and paid at closing. 

 

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. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department. 

 

Payment change date:  The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.  

 

Periodic payment cap:  For an adjustable rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.  

 

PITI:  Principal, Interest, Taxes, and Insurance are the four elements of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover these expenses as they come due. 

 

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 (PUD):  A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.  

 

PMI:  Private Mortgage Insurance.  Privately owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price. 

 

Point:  A point is equivalent to 1 percent of the amount of the mortgage.  

 

Pre-approval:  When a lender commits to lend to a potential borrower.  Commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. 

 

Prepayment:  Any amount paid by the borrower to reduce the principal balance of a loan before the due date.  Payment in full on a mortgage 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:  This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation and the loan officer may or may not have reviewed a credit report on the borrower.  

 

Principal:  The part of the monthly mortgage payment that reduces the remaining balance of a mortgage.  

 

Principal balance:  The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.  

 

Promissory note:  A written promise to repay a specified amount over a specified period of time.  

 

Planned Unit Development (PUD):  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 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. There are two ratios. The "top" or "front" ratio is a calculation of the borrower's monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner's association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt. 

 

Quitclaim deed:  A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.  

 

 

R

 

 

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 at a specific cost.  

 

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 that covers the costs of rehabilitating (repairing or Improving) a property.  Some rehabilitation mortgages like the FHA's 203(k) - allows a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Repayment plan:   An agreement between a lender and a borrower who is delinquent on his or her mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

RESPA: Real Estate Settlement Procedures Act.  A law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships. 

 

Reverse mortgage:  A financial tool that provides seniors with funds from the equity in their homes. Generally, no borrower payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed not to exceed the proceeds from the sale of the home. 

 

Revolving debt:  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.  

 

 

S

 

 

Second mortgage:  A mortgage that has a lien position subordinate to the first mortgage.  

 

Secondary mortgage market:  The market in which residential mortgages or mortgage securities are bought and sold. 

 

Secured loan:  A loan that is backed by collateral.  

 

Security:  The property that will be pledged as collateral for a loan.  

 

Seller carry-back:  An agreement in which the owner of a property provides financing often in combination with an assumable mortgage.  

 

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.  

 

Settlement:  Another name for closing. 

 

Settlement statement:  See HUD-1 Settlement Statement. 

 

Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments. 

 

Subordinate:  To place in a rank of lesser importance or to make one claim secondary to another. 

 

Subordinate financing:  Any mortgage or other lien that has a priority that is lower than that of the first mortgage. 

 

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.  

 

 

T

 

 

Tenancy in common:  As opposed to joint tenancy when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.  

 

Third-party origination:  A process 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.  

 

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 1:  An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home.  Title 1 loans less than $7,500 don't require a property lien. 

 

Title search:  A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property. 

 

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. 

 

Trustee:  A fiduciary who holds or controls property for the benefit of another.  

 

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.  

 

 

U

 

 

Underwriting:  The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's ability and willingness to repay the debt and the value of the property.

 

 

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VA:  Department of Veterans Affairs: a federal agency which guarantees loans made to veterans.  Similar to mortgage insurance a loan guarantee protects lenders against loss that may result from a borrower default.