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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