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GLOSSARY
OF TERMS
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ADJUSTABLE
RATE MORTGAGE (ARM): A mortgage instrument in which the interest
rate adjusts periodically according to a predetermined index and margin.
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ANNUAL PERCENTAGE RATE (APR): Total
finance charges - including interest, loan fees, points and other charges
- expressed as a percentage of the total amount of the loan. Under the Federal
Truth-In-Lending Act. (Regulation "Z"), the APR must be disclosed
to the borrower within 3 business days of receipt of a loan application.
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APPRAISAL: The act of preparing a report
by a qualified appraiser setting forth an opinion or estimate of value.
The most common type of appraisal for residential properties is the Comparable
Sales Approach. Two other appraisal techniques are the Cost Approach and
the Income Approach. An appraisal is usually ordered by the lender or the
Mortgage Broker.
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BI-WEEKLY
MORTGAGE: A mortgage with payments due every two weeks totaling
26 payments a year thus reducing the term from 30 years to 25 years.
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BRIDGE LOAN (SWING LOAN): Borrowing
against the equity in one's present home to enable the purchase of another
home before the existing home sells.
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CLOSING (REAL ESTATE): Final
settlement between the buyer and seller; the date on which title passes
from the seller to the buyer.
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CLOSING COSTS (LOAN): Money paid by
the borrower to effect the closing of a mortgage loan. This normally includes
an appraisal, processing fee, title insurance, home inspection, attorney's
fees, and prepaid items such as taxes and insurance escrow payments.
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CONTINGENCY: Something that requires
completion of a certain act or the happening of a particular event. Example:
financing "contingency" in a real estate contract means the buyer
needs a loan and is not using their own cash to buy property.
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CREDIT REPORT: A report of an individual's
credit history prepared by a credit bureau and used by the lender in determining
a loan applicant's credit worthiness.
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CREDIT SCORE: A numerical measurement
that reflects the ability of a borrower to manage credit.
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DEED: A written document
that transfers an ownership interest in real property from a seller (grantor)
to a buyer (grantee).
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DEFAULT: Breech or non-performance
of a clause in a note or a mortgage which, if not cured; could lead to foreclosure.
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EQUITY (OWNER'S EQUITY):
The difference between a property's fair market value and the current indebtedness.
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ESCROW IMPOUNDS: That portion of a
mortgagor's monthly payment held by the lender to pay for real estate taxes,
hazard insurance, and mortgage insurance, as they become due.
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FAIR ISAAC AND COMPANY (FICO):
The developer of a credit scoring system used by many credit reporting agencies.
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FICO SCORE: FICO score is a credit
score developed by Fair Isaac & Co. Credit scoring is a method of determining
the likelihood that credit users will pay their bills. Scoring has become
widely accepted by lenders as a reliable means of credit evaluation. A credit
score attempts to condense a borrower's credit history into a single number.
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FIXED RATE MORTGAGE (FRM): A mortgage
in which the interest rate and monthly payments remain constant over the
life of the loan.
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FORECLOSURE: The legal procedure undertaken
by a mortgagee for the purpose of having property sold and the proceeds
applied to the payment of a defaulted debt.
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HAZARD INSURANCE: A
contract whereby an insurer, for a premium, undertakes to compensate the
insured for a loss on a specific property due to fire, windstorm, and other
natural hazards.
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HOME EQUITY LINE OF CREDIT: A revolving
line of credit against the equity in one's home allowing the homeowner to
borrow as needed, up to a predetermined maximum amount.
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LEGAL DESCRIPTION: A
property description sufficient to locate and identify the property. Legal
descriptions are found on loan applications, appraisals, real estate contracts,
mortgages, surveys, and deeds.
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LEIN: A legal hold or claim of one
person on the property of another as security for a debt or charge. A mortgage,
once recorded, is a voluntary lien.
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LOAN PROCESSING: The assembling of
a mortgage loan application and related documents for consideration by a
lender.
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LOAN SUBMISSION: Documentation
delivered to a prospective lender for review and consideration for the purpose
of making a mortgage loan.
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LOAN-TO-VALUE RATIO (LTV): The
relationship between the mortgage amount and the appraised market value
(or sales price if lower) of the security property, and expressed as a percent.
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LOSS PAYABLE CLAUSE: A clause
in an insurance policy listing the priority of claims in the event of damage
to the insured property. A mortgagee is generally the party appearing in
the clause being paid the amount owed under the mortgage before the owner
is paid.
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MORGTGAGE: A
pledge of real peoperty given as security for the payment of a debt. Most
mortgages mature in more than one year and are considered capital market
instruments.
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MORTGAGE BROKER: A licensee who brings
a borrower and lender together and receives a fee for services performed.
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MORTGAGE INSURANCE: An insurance policy
to protect a lender against loss caused by a borrower's default.
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ORIGINATION FEE: The
fee for the work involved in the evaluation, preparation, and submission
of a proposed mortgage loan from individual borrowers.
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PREPAYMENT PENALTY CLAUSE: A
provision in a mortgage that requires the borrower to pay a monetary penalty
if the mortgage payments are made in advance of the normal due date
or if the mortgage is paid in full ahead of schedule.
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PRIVATE MORTGAGE INSURANCE: (PMI)
Insurance provided by a private company protecting conventional mortgage
lenders against loss resulting from a mortgagor's default.
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REAL ESTATE SALES
CONTRACT: A written agreement whereupon a seller commits to sell
and a buyer commits to purchase certain real estate. Provisions include;
price, terms, financing, down payment, and responsibility for property settlement
expenses. Most contracts provide for buyer or seller to cancel the contract
and permit return of buyer's deposit if diligent efforts to meet financing
contingencies have been unsuccessful.
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RECORDING: Providing constructive notice
with the clerk of the circuit court of details of a properly executed legal
document such as a deed, mortgage, or satisfaction of mortgage.
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REVERSE MORTGAGE: A mortgage in which
a lender may make scheduled monthly payments to the borrower using mortgage-free
property as collateral.
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RIGHT OF RESCISSION: The cancellation
of a contract. With respect to mortgage refinancing, the law gives the homeowner
three business days to cancel a contract in some cases once it is signed,
if the transaction uses equity in the home as security.
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SATISFACTION OF MORTGAGE (NOTICE
OF SATISFACTION): A recordable instrument provided by the lender
evidencing payment in full of the mortgage debt.
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SECURITY INTEREST: An interest that
a lender takes in the borrower's property to assure repayment of a debt.
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SERVICING: The collection for an investor
of periodic payments of principal, interest, and trust items (hazard insurance
and taxes) in accordance with the terms of the note and mortgage.
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SUBORDINATION: A voluntary acceptance
of a lower priority than one would otherwise be entitled to have in that
property. A subordinated mortgage is inferior to a senior mortgage.
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SURVEY: The procedure used to measure
and describe a specific tract of land for the purpose of determining exact
boundaries and the area contained therein.
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TENANCY IN THE ENTIRETIES:
The ownership of property by a husband and wife providing for the automatic
right of survivorship to the surviving spouse.
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TITLE: The evidence of
the right to ownership of property. |
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TITLE INSURANCE: A contract by which
the insurer agrees to pay the insured a specific amount for any loss resulting
from certain defects in the title to real estate.
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TITLE SEARCH: An analysis of the abstract
of title on a specific piece of property in order to determine the present
condition of title.
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UNDERWRITING: The analysis
of information relating to risk and making a decision whether or not to
accept that risk. The underwriter evaluates the borrower's ability and willingness
to repay the obligation and establishes that the property represents adequate
security for the debt. |
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