REAL ESTATE GLOSSARY:
A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
The date the interest rate changes on an adjustable-rate mortgage.
after repair value (ARV)
The current fair market value of a property assuming renovations which bring it up to market standards have been completed .
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
An opinion of a property’s fair market value, based on a licensed appraiser’s knowledge, experience and analysis of the property. An appraisal is based primarily on comparable sales of similar homes in the area and current market dynamics.
An licensed professional qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
The valuation placed on property by a public tax assessor for purposes of taxation.
A public official who establishes the value of a property for taxation purposes.
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
A mortgage that can be assumed by the buyer when a home is sold.
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance be paid.
The final lump sum payment that is due at the termination of a balloon mortgage.
By filing in federal bankruptcy court, an individual can restructure or relieve debts and liabilities. The most common form of bankruptcy for an individual is Chapter 7 bankruptcy, which relieves the borrower of most types of unsecured debts. A borrower cannot usually qualify for conventional financing for a period of two years after the bankruptcy has been discharged and is required to re-establish the ability to repay debt.
Bridge loans are for residential and commercial properties that need little or no improvement and are considered interim financing until permanent financing can be obtained.
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use.
chain of title
An analysis of the transfers of title to a piece of property.
A title that is free of liens or legal questions as to ownership of the property.
cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
An additional individual who is both obligated on the loan and is on title to the property.
In a real estate loans, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
Recent sales of similar properties in nearby areas, which are used to help determine the market value of a property. Also referred to as “comps.”
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.
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder via construction draws as the work is completed.
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified inspector.
A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
A record of an individual’s repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.
A person to whom money is owed.
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
The legal document conveying title to a property. Example: Grant Deed, Warranty Deed, Quitclaim Deed.
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
deed of trust
State typically use deeds of trust or mortgages, which are legal documents that evidence a debt and create a lien on a piece of property. They are recorded in the county in which the property is located.
When a borrower does not comply with the terms and conditions of a mortgage the borrower is in default and risks foreclosure. For example, failure to make the mortgage payment within the specified period of time.
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
A right of way giving persons other than the owner access to or over a property.
The right of a government to take private property for public use upon payment of its fair market value.
An improvement that intrudes illegally on another’s property.
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
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.
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.
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
The lawful expulsion of an occupant from real property.
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named.
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.
It is the way that real estate is owned in common law countries, and is the highest ownership interest possible that can be had in real property.
The mortgage that is in first place among any loans recorded against a property.
A mortgage in which the interest rate does not change during the term of the loan.
Personal property that becomes real property when attached in a permanent manner to real estate.
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
The legal process by which a borrower in default under a mortgage or deed of trust is deprived of his or her interest in the property.
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
HUD-1 settlement statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense has 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. The form, also known as the closing statement or settlement sheet, is printed by the Department of Housing and Urban Development (HUD).
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.
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.
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.
The penalty a borrower must pay when a payment is made a stated number of days late.
A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent, but an additional amount, which can be applied toward the down payment at an already specified price.
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to creditors.
Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.
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.
line of credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.
A cash asset or an asset that is easily converted into cash.
How a lender refers to the process of obtaining new loans.
After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.
The percentage relationship between the amount of the loan and the appraised value or sales price.
The date on which the principal balance of a loan becomes due and payable.
merged credit report
A credit report which reports the raw data pulled from two or more of the major credit reporting agencies.
Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification.
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use Trust Deeds.
A mortgage company that originates loans, then places those loans with a variety of other lending institutions.
The lender in a mortgage agreement.
The borrower in a mortgage agreement.
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
original principal balance
The total amount of principal owed on a mortgage before any payments are made.
The loan origination fee refers to the number of points, or the loan fee as a percentage of the loan amount, a borrower pays as a fee to obtain the loan.
A property purchase transaction in which the property seller provides all or part of the financing.
This stands for principal, interest, taxes and insurance. If you have an “impounded” loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
A point is 1 percent of the amount of the mortgage.
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.
When a borrower has completed a loan application and provided debt, income and savings documentation, which an underwriter has reviewed and approved. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender.
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that 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.
A fee that may be charged to a borrower who pays off a loan before it is due.
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.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
A written promise to repay a specified amount over a specified period of time.
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
A deed that transfers, without warranty, whatever interest or title a grantor may have at the time the conveyance is made.
real estate agent
A person licensed to negotiate and transact the sale of real estate.
A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
The process of paying off one loan with the proceeds from a new loan using the same property as security.
right of first refusal
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
right of ingress or egress
The right to enter or leave designated premises.
right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
A mortgage that has a lien position subordinate to the first mortgage.
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
See HUD1 Settlement Statement
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
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.
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.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
State or local tax payable when title passes from one owner to another.
A fiduciary who holds or controls property for the benefit of another.
The process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower under certain parameters is acceptable.
Wholesaling real estate involves finding a property at a bargain price (or negotiating a discount), putting the property under contract and either assigning the contract or re-selling the property to an investor buyer.