A
Abstract
(Of Title)
A
summary of the public records relating to the title to a particular piece
of land. An attorney or title insurance company reviews an abstract of title
to determine whether there are any title defects which must be cleared before
a buyer can purchase clear, marketable, and insurable title.
Acceleration
Clause
Condition in a mortgage that may require the balance of the loan to become
due immediately, if regular mortgage payments are not made or for breach of
other conditions of the mortgage.
Adjustable-Rate
Mortgage (ARM)
A mortgage where the interest rate is not fixed, but changes during the life
of the loan in line with movements in an index rate. You may also see ARMs
referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).
Adjustment
Period
This is the length of time for which the interest rate is fixed on an adjustable
rate mortgage. After that period it will be adjusted. Typically
once or twice a year depending on the index.
Agreement
of
Known by various names, such as contract of purchase, purchase
agreement, or sales agreement according to location or jurisdiction.
A contract in which a seller agrees to sell and a buyer agrees to buy, under
certain specific terms and conditions spelled out in writing and signed by
both parties.
Alienation
Clause
Provision in a mortgage document stating that the loan must be paid in full
if ownership is transferred. See Due on
A payment plan which enables the borrower to reduce his debt gradually through
monthly payments of principal.
Annual
Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate.
It includes interest as well as other charges. Because all lenders follow
the same rules to ensure the accuracy of the annual percentage rate, it provides
consumers with a good basis for comparing the cost of loans, including mortgage
plans.
Appraisal
An expert judgment or estimate of the quality or value of real estate as of
a given date.
Assumability
When a home is sold, the seller may be able to transfer the mortgage to the
new buyer. This means the mortgage is assumable. Lenders generally require
a credit review of the new borrower and may charge a fee for the assumption.
Some mortgages contain a due-on-sale clause, which means that the mortgage
may not be transferable to a new buyer. Instead, the lender may make you pay
the entire balance that is due when you sell the home. Assumability can help
you attract buyers if you sell your home.
Assumption
The
agreement between buyer and seller where the buyer takes over the payments
on an existing mortgage from the seller. The lender has to be notified and
agree to the assumption. Assuming a loan can usually save a
money since the buyer isn't required to pay most of the closing costs.
Assumption
of Mortgage
An obligation undertaken by the purchaser of property to be personally
liable for payment of an existing mortgage. In an assumption,
the purchaser is substituted for the original mortgagor in the mortgage instrument
and the original mortgagor is to be released from further liability in the
assumption, the mortgagee's consent is usually required.
The original mortgagor should always obtain a written release from further
liability if he desires to be fully released under the assumption. Failure
to obtain such a release renders the original mortgagor liable if the person
assuming the mortgage fails to make the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject to
a mortgage." When one purchases subject to a mortgage, the purchaser
agrees to make the monthly mortgage payments on an existing mortgage, but
the original mortgagor remains personally liable if the purchaser fails to
make the monthly payments. Since the original mortgagor remains liable in
the event of default, the mortgagee's consent is not required to a sale subject
to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used
to finance the sale of property. They may also be used when a mortgagor is
in financial difficulty and desires to sell the property to avoid foreclosure.
Attached
Home
A home that has one or more common walls adjoining another home.
Condominiums, row houses, Patio homes, cluster homes and Townhomes are types
of attached homes.
Balloon
Mortgage
A short-term fixed-rate loan which involves smaller payments for a certain
period of time and one large payment for the entire amount of the outstanding
principal. Usually they have terms of 5 and 7 years.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between
a buyer and seller as an offer to purchase real estate. A binder secures the
right to purchase real estate upon agreed terms for a limited period of time.
If the buyer changes his mind or is unable to purchase, the earnest money
is forfeited unless the binder expressly provides that it is to be refunded.
Biweekly Mortgage
A mortgage which requires a payment for half the monthly amount every two
weeks. As a result the loan amortizes much faster than a loan with normal
monthly payments. For example, a 30 year fixed rate loan will be paid off
in approximately 19 years.
Blanket
Mortgage
A mortgage covering at least two pieces of real estate as security for the
same mortgage.
Bridge
Loan
An interim loan is made to finance a buyers new
residence if the buyer is unable to sell his/her current residence but needs
money to close the transaction.
Building
Line or Setback
Distances from the ends and/or sides of the lot beyond which construction
may not extend. The building line may be established by a filed plat of subdivision,
by restrictive covenants in deeds or leases, by building codes, or by zoning
ordinances.
Buydown
With a buydown, the seller pays an amount to the lender so that the
lender can give you a lower rate and lower payments, usually for an early
period in an ARM. The seller may increase the sales price to cover the cost
of the buydown. Buydowns can occur in all types of mortgages, not just ARMs.
Caps
A limit on how much the interest rate or the monthly payment can change, either
at each adjustment or during the life of the mortgage. Most ARMs have an interest
rate caps to protect you from enormous increases in monthly payments.
A lifetime cap limits the interest rate increase over the life of the loan.
Lifetime caps can vary by lender, but most ARMs have caps of 5% or 6%. A periodic
or adjustment cap limits how much your interest rate can rise at one time.
Generally, a 6 month ARM will have a cap of 1% while a 1 year ARM will have
a 2% cap.
Periodic and lifetime caps are quoted as two numbers as in 2/6 which would
mean that periodic cap is 2% and the lifetime cap is 6%. Examples:
ARMs
which have an initial fixed period -- 30/3/1, 30/5/1, 30/7/1 and 30/10/1 --
can have also first adjustment cap. It limits the interest rate you will pay
the first time your rate is adjusted. These ARMs are quoted as three numbers
as in 5/2/5 which would mean that the first adjustment cap is 5%, adjustment
cap thereafter is 2%, and the lifetime cap is 5%.
Two-Step loans -- 5/25 and 7/23 -- have only one adjustment after the first
five or seven years of its term. They are quoted with a single first adjustment
cap.
Certificate
of Eligibility
The document issued by the U.S. Department of Veterans Affairs. It is required
when applying for VA loans.
Certificate
of Occupancy
Document issued by a local governmental agency that states a property meets
the local building standards for occupancy.
Certificate
of Title
A certificate issued by a title company or a written opinion
rendered by an attorney that the seller has good marketable and insurable
title to the property which he is offering for sale. A certificate of title
offers no protection against any hidden defects in the title which an examination
of the records could not reveal. The issuer of a certificate of title is liable
only for damages due to negligence. The protection offered a homeowner under
a certificate of title is not as great as that offered in a title insurance
policy.
Clear
Title
A title that free of clouds and disputed interests.
Closing
Costs
The numerous expenses which buyers and sellers normally incur to complete
a transaction in the transfer of ownership of real estate. These costs are
in addition to price of the property and are items prepaid at the closing
day. This is a typical list:
| BUYER'S
EXPENSES |
SELLER'S
EXPENSES |
The
agreement of sale negotiated previously between the buyer and the seller may
state in writing who will pay each of the above costs.
Cloud
(On Title)
An outstanding claim or encumbrance which adversely affects the marketability
of title.
Commitment
A written agreement between a lender and a borrower to loan money on specific
terms or conditions.
Condemnation
The taking of private property for public use by a government unit, against
the will of the owner, but with payment of just compensation under the government's
power of eminent domain. Condemnation may also be a determination
by a governmental agency that a particular building is unsafe or unfit for
use.
Condominium
Individual ownership of a dwelling unit and an individual interest in the
common areas and facilities which serve the multi-unit project.
Construction loan
A short term loan to pay for the construction of buildings or homes. These
loans usually provide periodic disbursements to the builder as each stage
of the building is completed. Generally followed by long
term financing called a "take out" loan issued upon completion of construction.
Contingency
A condition put on an offer to buy a home; such as the perspective buyer making
an offer contingent on his or her sale of a present home.
Contract
of Purchase
See Agreement on
Contractor
In the construction industry, a contractor is one who contracts to erect buildings
or portions of them. There are also contractors for each phase of construction:
heating, electrical, plumbing, air conditioning, road building, bridge and
dam erection, and others.
Conventional
Mortgage
A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration.
It is subject to conditions established by the lending institution and State
statutes. The mortgage rates may vary with different institutions and between
States. (States have various interest limits.)
Conversion
Option
Some ARMs come with options to convert them to a fixed rate mortgage during
a given time period without having to go through a refinancing, which could
cost up to 5 percent or 6 percent of the loan amount. For example popular
conversion options for 1 year treasury-indexed ARMs include:
The interest rate or points may be somewhat higher for a convertible ARM. Also, a convertible ARM may require a small fee at the time of conversion.
Conveyance
The transfer of title to the property from one party to another.
Credit
Report
A report documenting the history of how you paid back the companies you have
borrowed money from, or how you have met other financial obligations.
Deed
A formal written instrument by which title to real property is transferred
from one owner to another. The deed should contain an accurate description
of the property being conveyed, should be signed and witnessed according to
the laws of the State where the property is located, and should be delivered
to the purchaser at closing day. There are two parties to a deed: the grantor
and the grantee. (See also Deed of Trust, General Warranty Deed, Quitclaim
Deed, and Special Warranty Deed.),
Deed
of Trust
Like a mortgage, a security instrument whereby real property is given as security
for a debt. However, in a deed of trust there are three parties to the instrument:
the borrower, the trustee, and the lender, (or beneficiary). In such a transaction,
the borrower transfers the legal title for the property to the trustee who
holds the property in trust as security for the payment of the debt to the
lender or beneficiary. If the borrower pays the debt as agreed, the deed of
trust becomes void. If, however, he defaults in the payment of the debt, the
trustee may sell the property at a public sale, under the terms of the deed
of trust. In most jurisdictions where the deed of trust is in force, the borrower
is subject to having his property sold without benefit of legal proceedings.
A few States have begun in recent years to treat the deed of trust like a
mortgage.
Default
Failure to make mortgage payments as agreed to in a commitment based on the
terms and at the designated time set forth in the mortgage or deed of trust.
It is the mortgagor's responsibility to remember the due date and send the
payment prior to the due date, not after. Generally, thirty days after the
due date if payment is not received, the mortgage is in default. In the event
of default, the mortgage may give the lender the right to accelerate payments,
take possession and receive rents, and start foreclosure. Defaults may also
come about by the failure to observe other conditions in the mortgage or deed
of trust.
Deferred
interest
When the monthly payments do not cover all of the interest cost, the unpaid
interest is deferred by adding it to the loan balance.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood,
or any other reason.
Discount
In an ARM with an initial rate discount, the lender gives up a number of percentage
points in interest to give you a lower rate and lower payments for part of
the mortgage term (usually for one year or less). After the discount period,
the ARM rate will probably go up depending on the index rate.
A State tax, in the forms of stamps, required on deeds
and mortgages when real estate title passes from one owner to another.
The amount of stamps required varies with each State.
Documentary
Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when
real estate title passes from one owner to another. The amount of stamps required
varies with each State. Also called “Tax stamps.”
Downpayment
The amount of money to be paid by the purchaser to the seller upon the signing
of the agreement of sale. The agreement of sale will refer to the downpayment
amount and will acknowledge receipt of the downpayment. Downpayment is the
difference between the sales price and maximum mortgage amount. The downpayment
may not be refundable if the purchaser fails to buy the property without good
cause. If the purchaser wants the downpayment to be refundable, he should
insert a clause in the agreement of sale specifying the conditions under which
the deposit will be refunded, if the agreement does not already contain such
clause. If the seller cannot deliver good title, the agreement of sale usually
requires the seller to return the downpayment and to pay interest and expenses
incurred by the purchaser.
Due-on-Sale
Clause A clause in the Deed of Trust or Mortgage that states
that the entire loan is due upon the sale of the property.
Earnest
Money
The deposit money given to the seller or his agent by the potential buyer
upon the signing of the agreement of sale to show that he is serious about
buying the house. If the sale goes through, the earnest money is applied against
the downpayment. If the sale does not go through, the earnest money will be
forfeited or lost unless the binder or offer to purchase expressly provides
that it is refundable.
Easement
Rights
A right-of-way granted to a person or company authorizing access to or over
the owner's land. An electric company obtaining a right-of-way across private
property is a common example.
Encroachment
An obstruction, building, or part of a building that
intrudes beyond a legal boundary onto neighboring private or public land,
or a building extending beyond the building line.
Encumbrance
A legal right or interest in land that affects a good or clear title, and
diminishes the land's value. It can take numerous forms, such as zoning ordinances,
easement rights, claims, mortgages, liens, charges, a pending legal action,
unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent
transfer of the property to another. A title search is all that is usually
done to reveal the existence of such encumbrances, and it is up to the buyer
to determine whether he wants to purchase with the encumbrance, or what can
be done to remove it.
Equal
Credit
Prohibits discrimination in any aspect of a credit transaction on the basis
of race, religion, age, color, national origin, receipt of public assistance
funds, sex, or marital status.
Equity
The value of a homeowner's unencumbered interest in real estate.
Equity is computed by subtracting from the property's fair market value the
total of the unpaid mortgage balance and any outstanding liens or other debts
against the property. A homeowner's equity increases as he pays off his mortgage
or as the property appreciates in value. When the mortgage and all other debts
against the property are paid in full the homeowner has 100% equity in his
property.
Escrow
Funds paid by one party to another (the escrow agent) to hold until the occurrence
of a specified event, after which the funds are released to a designated individual.
In FHA mortgage transactions an escrow account usually refers to the funds
a mortgagor pays the lender at the time of the periodic mortgage payments.
The money is held in a trust fund, provided by the lender for the buyer. Such
funds should be adequate to cover yearly anticipated expenditures for mortgage
insurance premiums, taxes, hazard insurance premiums, and special assessments.
Fair
Housing Act
Prohibits
discrimination in housing sales or loans on the basis of race, religion, color,
national origin, sex, familial status, or handicap.
Federal
Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
A stockholder-owned corporation chartered by Congress to create a continuous
flow of funds to mortgage lenders in support of homeownership and rental housing.
Freddie Mac purchases single-family and multifamily residential mortgages
from lenders and packages them into securities that are sold to investors.
Federal Housing Administration (FHA)
A part of the U.S. Department of Housing and Urban Development (HUD). FHA
assists first-time home buyers and others who might not be able to meet down
payment requirements for conventional loans by providing mortgage insurance
to private lenders. It also insures loans for home improvements and buying
manufactured (mobile) homes. These programs operate through FHA approved lending
institutions which submit applications to have the property appraised and
have the buyer's credit approved.
Federal
National Mortgage Association (FNMA, Fannie Mae)
A stockholder-owned federally chartered corporation. Fannie
Mae purchases residential home loans from mortgage lending institutions, packages
the mortgages into securities and sells the securities to investors. The
largest source of residential mortgage funds in the
FHA Loan
A loan insured by the Federal Housing Administration open to
all qualified home purchasers. Interest rates on FHA loans are generally market
rates, while down payment requirements are lower than for conventional loans.
FHA loans cannot exceed the statutory limit.
Firm
Commitment
A lender’s agreement to make a loan to a specific borrower
on a specific property.
First
Mortgage
A mortgage that has priority as a lien over all other mortgages.
Fixed
Installment
The monthly payment due on a mortgage loan. The
fixed installment includes payment of both principal and interest.
Flood
Insurance
Insurance that compensates for physical property damage resulting
from flooding. It is required for properties located in federally
designated flood areas.
Foreclosure
A legal term applied to any of the various methods of enforcing payment of
the debt secured by a mortgage, or deed of trust, by taking and selling the
mortgaged property, and depriving the mortgagor of possession.
FSBO
For sale by owner.
General
Warranty Deed
A deed which conveys
not only all the grantor's interests in and title to the property to the grantee,
but also warrants that if the title is defective or has a "cloud" on it (such
as mortgage claims, tax liens, title claims, judgments, or mechanic's liens
against it) the grantee may hold the grantor liable.
Government
National Mortgage Association (GNMA, Ginnie Mae)
A wholly-owned government corporation within the U.S. Dept. of Housing and
Urban Development helping to finance government-assisted housing programs.
Ginnie Mae guarantees securities backed by pools of mortgages. The mortgages
are insured by the Federal Housing Administration (FHA), or guaranteed by
the Veterans Administration (VA) or by the Rural Housing Service (RHS). Ginnie
Mae securities are bought and sold through financial institutions that trade
government securities.
Graduated
Payment Mortgage
A type of a mortgage that has lower payments initially
and then payments increase each year until the loan is fully amortized.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
Hazard
Insurance
Protects
against damages caused to property by fire, windstorms, and other common hazards.
The assessed value of a owner-occupied residential
property may be reduced by the amount of the exemption for the purposes of
calculating property tax. Available in some states.
A standard form that shows all charges imposed on borrowers
and sellers in connection with the settlement. RESPA allows the borrower to
request to see the HUD-1 Settlement Statement one day before the actual settlement.
Impound
That
portion of a borrower's monthly payments held by the lender or servicer to
pay for taxes, hazard insurance, mortgage insurance, lease payments, and other
items as they become due.
Index
A published measure of economic conditions usually relative
to other financial instruments such as Treasury notes or Treasury bills. The
lender uses a particular index to calculate the interest rate on an adjustable
rate mortgage (ARM) by adding a fixed margin to the index. The most common
indexes are:
Interest
A charge paid for borrowing money. See Mortgage Note.
Joint
Tenancy
Joint tenancy is one of the methods available for two or more people to hold
title to real estate or personal property. It includes a right of survivorship,
meaning that on the death of one joint tenant, his/her interests transfer
to the remaining joint tenants.
Jumbo
Loan
A loan that is larger than the conforming loan limit
established by Fannie Mae or Freddie Mac. It often has interest rates a little
higher than conforming loan.
Lien
A claim by one person on the property of another as security for money owed.
Such claims may include obligations not met or satisfied, judgments, unpaid
taxes, materials, or labor. See also Special Lien.
Loan-to-Value
Ratio (LTV)
The relationship between the amount of the mortgage loan and the value of
the real property expressed as a percentage. For purchase loans the value
of the property is the appraised value or the purchase price, whichever is
less. For refinance loans the value is the appraised value.
A LTV of 90% means that you can borrow a maximum of 90% of the property value.
If a LTV exceeds 80%, a Private Mortgage Insurance (PMI) -- that insures the
lender in the event a borrower defaults -- is generally required.
Downpayment is the difference between the purchase price and the mortgage
amount.
Lock
A lender's promise to hold a certain interest rate and points
for you, for a given number of days, while your loan application is processed.
The interest rates quoted to you may stay the same, decrease, or increase
from the day you apply for your mortgage. Lock-ins on rates and points might
offer you a way to ensure that what you shop for is what you get.
However, a locked-in rate could also prevent you from taking advantage of
rate decreases. If you think that rates will remain level or even go down,
you may choose to bet on interest rates decreasing by electing to float until
you go to closing.
Lock-ins of 30-60 days are common. If your lock-in
period expires before you go to closing, you might lose the interest rate
and the number of points you had locked-in. You may ask lender for a longer
lock-in period. But bear in mind that lenders may charge you a fee for a longer
lock-in period. Request information from the lender regarding
lock procedures.
A Consumer's Guide To Mortgage Lock-Ins
A Federal Reserve Board publication.
Marketable
Title
A title that
is free and clear of objectionable liens, clouds, or other title defects.
A title which enables an owner to sell his property freely to others and which
others will accept without objection.
Margin
The number of percentage points the lender adds to
the index rate to calculate the ARM interest rate at each adjustment.
Mortgage
A lien or claim against real property given by the
buyer to the lender as security for money borrowed. Under government-insured
or loan-guarantee provisions, the payments may include escrow amounts covering
taxes, hazard insurance, water charges, and special assessments. Mortgages
generally run from 10 to 30 years, during which the loan is to be paid off.
Mortgage
Broker
A person (not an employee of a lender) who brings a borrower and a lender
together to obtain a federally-related mortgage loan. A mortgage broker has
access to a variety of lenders and often offers the most choice in loan programs.
Mortgage brokers are paid by the lender when a loan closes.
Mortgage
Commitment
A written notice from the bank or other lending institution
saying it will advance mortgage funds in a specified amount to enable a buyer
to purchase a house.
Mortgage
Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD to help
defray the cost of the FHA mortgage insurance program and to provide a reserve
fund to protect lenders against loss in insured mortgage transactions. In
FHA insured mortgages this represents an annual rate of one-half of one percent
paid by the mortgagor on a monthly basis.
Mortgage
Note
A written agreement to repay a loan. The agreement
is secured by a mortgage, serves as proof of an indebtedness,
and states the manner in which it shall be paid. The note states the actual
amount of the debt that the mortgage secures and renders the mortgagor personally
responsible for repayment.
Mortgage
(Open-End)
A mortgage with a provision that permits borrowing additional
money in the future without refinancing the loan or paying additional financing
charges. Open-end provisions often limit such borrowing to no
more than would raise the balance to the original loan figure.
Mortgagee
The lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage agreement.
Multiple
Listing Service (MLS)
A service offered to participating
real estate brokers that lists available homes for sale. The listings are
published and distributed among the member brokers to assist in sales efforts.
Negative
Amortization
Amortization means
that monthly payments are large enough to pay the interest and reduce the
principal on your mortgage. Negative amortization occurs when the monthly
payments do not cover all of the interest cost. The interest cost that isn't
covered is added to the unpaid principal balance. This means that even after
making many payments, you could owe more than you did at the beginning of
the loan. Negative amortization can occur when an ARM has a payment cap that
results in monthly payments not high enough to cover the interest due.
Non-conforming
loan
Loans that do not comply with Fannie Mae or Freddie Mac guidelines.
These guidelines establish the maximum loan amount, down payment, borrower
credit and income requirements, and suitable properties. Loans that do conform
to these guidelines may be sold to Fannie Mae or Freddie Mac.
Owner
Financing
A property purchase
transaction in which the property seller provides all or part of the financing.
PITI
Principal,
Interest, Taxes and Insurance.
These components are usually included in the monthly mortgage payment.
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.
Plat
A map or chart of a lot, subdivision or community drawn by a surveyor showing
boundary lines, buildings, improvements on the land, and easements.
Points
Sometimes called "discount points." A point is one percent of
the amount of the mortgage loan. For example, if a loan is for $25,000, one
point is $250. Points are charged by a lender to raise the yield on his loan
at a time when money is tight, interest rates are high, and there is a legal
limit to the interest rate that can be charged on a mortgage. Buyers are prohibited
from paying points on HUD or Veterans' Administration guaranteed loans (sellers
can pay, however). On a conventional mortgage, points may be paid by either
buyer or seller or split between them.
Power
of Attorney
A legal document that authorizes another person to
act on one’s behalf. A power of attorney can grant complete authority
or can be limited to certain acts and/or certain periods of time.
Prepayment
Payment of mortgage loan, or part of it, before due date. Mortgage
agreements often restrict the right of prepayment either by limiting the amount
that can be prepaid in any one year or charging a penalty for prepayment.
Lenders who impose prepayment penalties will charge borrowers a fee if they
wish to repay part or all of their loan in advance
of the regular schedule. The Federal Housing Administration does not permit
such restrictions in FHA insured mortgages.
Principal
The basic element of the loan as distinguished from interest and mortgage
insurance premium. In other words, principal is the amount upon which interest
is paid.
Private
Mortgage Insurance (PMI)
An insurance policy the borrower buys to protect the lender from non-payment
of the loan.
Prorations
The allocation of expenses, such as taxes between buyer and
seller at closing based on the number of days the property is owned during
the month of closing.
Processing,
Underwriting and Document Fees
Charges for the lender's services associated with
making the loan.
Purchase
Agreement
See Agreement of
Quitclaim Deed A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. See Deed.
Qualifying Ratios Lenders use certain guidelines to determine a potential borrower's credit-worthiness. The two guidelines used are the housing and debt ratios. They are expressed as two numbers like 28/36 where 28 would be the housing ratio and 36 would be the debt ratio. It means that:
Real
Estate Settlement Procedures Act (RESPA)
A consumer protection
statute designed to help consumers be better shoppers in the home buying process.
It requires that borrowers receive disclosures at various times. RESPA also
prohibits certain practices that increase the cost of settlement services.
Refinancing
The process of the same mortgagor paying off one loan with the
proceeds from another loan.
Rescission
The cancellation of a contract. When you use your home as collateral
for a loan, you generally have the right to cancel the credit transaction
within three business days. This is called your "right of rescission," and
it is guaranteed by the Federal Truth in Lending Act. For more information
refer to the FTC publication "Getting a Loan: Your Home as Security."
Restrictive
Covenants
Private restrictions limiting the use of real property.
Restrictive covenants are created by deed and may "run with the land," binding
all subsequent purchasers of the land, or may be "personal" and binding only
between the original seller and buyer. The determination whether a covenant
runs with the land or is personal is governed by the language of the covenant,
the intent of the parties, and the law in the State where the land is situated.
Restrictive covenants that run with the land are encumbrances and may affect
the value and marketability of title. Restrictive covenants may limit the
density of buildings per acre, regulate size, style or price range of buildings
to be erected, or prevent particular businesses from operating or minority
groups from owning or occupying homes in a given area. (This latter discriminatory
covenant is unconstitutional and has been declared unenforceable by the U.S.
Supreme Court.)
Reverse
Mortgage
A special type of home loan that lets elderly homeowners convert
the equity in their home into cash.
Right
of Survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased
joint tenant.
Sales
Agreement
See Agreement of
This home is not rented and
is occupied occasionally by the owners.
Second
mortgage
A mortgage in addition to
the first mortgage. Home equity loans, credit lines, home improvement loans
are second mortgage loans. Second mortgage is subordinate to the first one.
Second mortgage loans are non-conforming loans, so, they usually carry a higher
interest rate, and they often are for a shorter time.
Secondary
(subordinate) financing
Borrowing additional money toward the down payment.
If it is acceptable, usually subject to a maximum combined
LTV (CLTV). Done on a 2nd loan called a piggy back loan.
Section
1031
Exchange of property held for productive use or investment.
Under section 1031 of the IRS, owners or real estate held for investment or
for use in a trade or business can exchange their property tax-free for "like-kind"
real estate.
Servicing
Servicing means the collection of payments, handling your escrow
accounts and management of operational procedures, related to mortgages, that
a lender performs.
Special
Assessments
A special tax imposed on property, individual lots or all property
in the immediate area, for road construction, sidewalks, sewers, street lights,
etc.
Special
Lien
A lien that binds a specified piece of property, unlike a general
lien, which is levied against all one's assets. It creates a right to retain
something of value belonging to another person as compensation for labor,
material, or money expended in that person's behalf. In some localities it
is called "particular" lien or "specific" lien. See Lein.
Special
Warranty Deed
A deed in which the grantor conveys title to the grantee
and agrees to protect the grantee against title defects or claims asserted
by the grantor and those persons whose right to assert a claim against the
title arose during the period the grantor held title to the property. In a
special warranty deed the grantor guarantees to the grantee that he has done
nothing during the time he held title to the property which has, or which
might in the future, impair the grantee's title.
State
Stamps
See Documentary Stamps.
Survey
A map or plat made by a licensed surveyor showing the results
of measuring the land with its elevations, improvements, boundaries, and its
relationship to surrounding tracts of land. A survey is often required by
the lender to assure him that a building is actually sited on the land according
to its legal description.
Tax
As applied to
real estate, an enforced charge imposed on persons, property or income, to
be used to support the State. The governing body in turn utilizes the funds
in the best interest of the general public.
Taxable Assessed Value
The assessed value of a parcel against which the tax rate is
applied to compute the tax due. In case of a partial exemption, the exempt
amount is subtracted from the assessed value in order to determine the taxable
assessed value.
Teaser Rate
A low initial interest rate on a mortgage.
Title
As generally used, the rights of
ownership and possession of particular property. In real estate usage, title
may refer to the instruments or documents by which a right of ownership is
established (title documents), or it may refer to the ownership interest one
has in the real estate.
Title Insurance
Protects lenders or homeowners against loss of their interest
in property due to legal defects in title. Title insurance may be issued to
a "mortgagee's title policy." Insurance benefits will be paid only to the
"named insured" in the title policy, so it is important that an owner purchase
an "owner's title policy," if he desires the protection of title insurance.
Title
Insurance Binder
Written commitment of a title insurance company to
insure title to the property under the conditions stated in the binder.
Title Search or Examination
A check of the title records, generally at the local
courthouse, to make sure the buyer is purchasing a house from the legal owner
and there are no liens, overdue special assessments, or other claims or outstanding
restrictive covenants filed in the record, which would adversely affect the
marketability or value of title.
Trustee
A party who is given legal responsibility to hold
property in the best interest of or "for the benefit of" another. The trustee
is one placed in a position of responsibility for another, a responsibility
enforceable in a court of law. See Deed of Trust.
Truth-In-Lending
Act ( TIL, also called Regulation Z)
Under this act a lender is required to provide you with a disclosure estimating
the costs of the loan you have applied for, including your total finance charge
and the Annual Percentage Rate (APR) within three business days of your application
for a loan.
Underwriting
A process of deciding whether to make a loan based on your credit reputation,
income, debt, appraised value of the house and other factors.
A mortgage for veterans and service persons guaranteed by the Department of
Veterans Affairs (VA), requiring very low or no downpayments and with generous
requirements for qualification.
Wraparound
Mortgage
A loan arrangement whereby the existing loan is retained and a new loan is
added to the property. Full payments on both mortgages are made to the wraparound
mortgagee, who then forwards the payments on the first mortgage to the first
mortgagee.
Zoning
A local government authority's specifications for the use of property
in certain areas.