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Law Office of William F. Scofield
William F. Scofield, LLC Attorney at Law
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Glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z all
 
203(b)
FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
 
203(k)
This FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
 
Abstract of Title
A public record showing a condensed title history of the property.
 
Acceleration Clause
A provision that requires that the entire loan balance (principal and interest) becomes due if the borrower defaults on the loan or transfers title to another party.
 
Adjustable Rate Mortgage(ARM)
A mortgage with an interest rate that changes periodically, according to a preselected "index", such as Treasury Bills. Monthly payments can go up or down when the rate is adjusted.
 
Adjustment Date
The date that an ARM’s interest rate is changed.
 
Amenity
A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).
 
Amortization
The process of paying off the debt or mortgage at the end of a fixed period, usually by equal monthly payments (which monthly payments include both principal and interest and including accrued interest on the outstanding balance). Monthly payments are mostly interest at first (because the debt is higher), and almost entirely principal in later years, when the loan balance is smaller.
 
Amortization Schedule
A table which shows the distribution of monthly payments—how much will be applied toward principal and how much toward interest over the life of the loan.
 
Annual Percentage Rate (APR)
A figure which attempts to reflect the total cost of a loan, expressed as a yearly rate. Because the APR takes the total cost of credit into account, it can never be lower, and is almost higher than the stated note rate or advertised rate. Within reason, the APR allows you to compare different types of mortgages based on the total cost.
 
Application Form (1003)
The standard form used to apply for a mortgage. The form gives the lender information about you regarding your income, savings, assets, debts, and more.
 
Appraisal
A written justification of the value of a property based upon a factual analysis, based on the prices paid for similar properties in the area. The valuation of the property is made by a qualified professional called an Appraiser.
 
Appraised Value
An opinion of the fair value of a property, generally by a qualified and/or licensed professional an appraiser.
 
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 over time, usually due to changes in market conditions, inflation, or improvements.
 
APR
See Annual Percentage Rate (APR)
 
ARM
See Adjustable Rate Mortgage(ARM)
 
Arm’s Length Transaction
Legal terminology meaning that there existed no special relationship between the parties involved in any matter that would taint the result.
 
Assessed Value
The valuation placed on property for the purpose fixing the amount property taxes.
 
Assessment
The process of setting the value of a property for tax purposes.
 
Assessor
A government official who is responsible for determining the value of a property for the purpose of taxation.
 
Asset
Personal and Real property: items of value, which can be quickly converted into cash. These items include—but are not limited to—bank accounts, stocks, bonds, mutual funds, real estate, personal property, etc.
 
Assignment
Transfer of ownership from one individual or company to another. Lenders often assign mortgages, which they make to Fannie Mae, or other entities, which specialize in buying mortgages.
 
Assignment of Mortgage
The transfer of a mortgage from one lender to another. Mortgages are often sold after the closing by the lender you worked with at closing and other lenders. In connection with the sale, the mortgage is assigned by your old lender to your new lender. Often, the sale of a customer’s mortgage is anticipated before the loan even closes. The sale and assignment of the mortgage in no way effects the interest rate or other terms which the borrower agreed to at closing. You may, however, send your mortgage payments to a new address and have new contact information. Another reason for the assignment of the mortgage is for the purpose of saving the borrower the cost of mortgage tax. This practice of assigning mortgages to minimize mortgage recording tax is most common in New York State, which has a particularly large mortgage tax. In New York, and some other states, when a home is purchased or refinanced, the state will impose mortgage tax based upon a percentage of the loan amount. When refinancing, mortgage tax may only have to be paid on the difference of the outstanding loan balance on the old loan and the new loan amount, if higher. An assignment of mortgage is also known as a Consolidation Extension Modification (CEM) or Modification Extension Consolidation Agreement (MECA). The assigning lender (your old lender) usually charges a legal fee and document preparation fee to assign the mortgage. Not all lenders are willing to take other lenders’ mortgages by assignment. If your old mortgage is relatively large (say, over $150,000) , this fee for the assignment is usually lower than paying the full mortgage recording tax on the entire amount of the refinance.
 
Assumable Mortgage
A mortgage which can be assumed by the buyer when a home is sold. Not commonly available in recent years.
 
Assumption
The process of assuming a mortgage. The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charge will apply. However, for the seller to be released from liability on the mortgage, the lender’s consent will be needed. Currently, very few mortgages permit assumptions.
 
Balloon Mortgage
A fixed rate mortgage with monthly payments, which are not large enough to pay off the loan during the term. Balloons end after a specific time, usually one to five years, after which the entire remaining balance must be paid in a lump sum.
 
Balloon Payment
The final lump sum payment due at the end of a balloon mortgage.
 
Balloon Reset Mortgage
See Two Step Mortgage (Balloon Reset)
 
Basis Point
1/100th of a point. See Point. One hundred basis points is equal to one percent (or one point, in mortgage terms). 50 basis points equals ½ of a percent, etc.
 
Bill of Sale
A written document which transfers titles to personal property, such as an automobile or other valuable property.
 
Biweekly Mortgage
A mortgage with payments made every two weeks instead of monthly. Since a biweekly has 26 payments per year—the equivalent of 13 monthly payments—the loan is paid off much sooner, typically in 22 to 23 years as opposed to monthly payments for 30 years. The early payoff saves the borrower a substantial amount of interest.
 
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
A loan used (usually) to finance the down payment on a new home before the previous property is sold. Bridge loans used to be more commonly available; now-a-days, bridge loans are not only hard to find but are quite expensive.
 
Broker
A person or company that, for a specified fee, provides a service. Real Estate brokers bring together buyers and sellers and then facilitate the transaction. Note: most Real Estate brokers represent the seller, NOT the buyer. Mortgage brokers are individuals or companies, which arrange financing but do not lend money directly.
 
Budget
A detailed record of all income earned and spent during a specific period of time.
 
Building code
Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.
 
Buy-down
A payment to the lender from the seller, buyer, third party, or some combination of these of points to lower the interest rate during the early years of a loan. The buy-down is usually for the first 1 to 5 years of the loan. The effect is to lower the interest rate for some period of time, which in turn allows the borrower to qualify. The reduced monthly payments increase when the subsidy expires.
 
Caps
Caps are limits on the amount that the interest rate on an Adjustable Rate Mortgage can change at any one adjustment and (usually) over the life of the loan. They protect the borrower from huge increases in the monthly payment in a rising interest rate environment. Rarely, a cap may apply to the payment amount rather than to the rate. Under certain conditions, payment caps can cause the loan balance to increase rather than decrease. See Negative Amortization
 
Cash Out Refinance
The process of refinancing a loan in an amount higher than the outstanding balance on the existing loan, assuming the property has a sufficiently high value to support the higher loan.
 
Cash Reserves
A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
 
Certificate of Eligibility
A document required for a VA- (Veterans Administration)-guaranteed loan. It is obtained through any local VA office on presentation of a DD-214 Separation Paper.
 
Certificate of Reasonable Value (CRV)
Used for VA loans only, a certificate issued by the Veterans Administration verifying the appraisal.
 
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; before the title is transferred at closing, it should be clear and free of all liens or other claims.
 
Closing
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
The total costs and fees associated with closing. Includes one-time non-recurring fees and charges for inspections and other services, and (usually) initial escrows for recurring costs such as property taxes and insurance.
 
Closing Statement
See Settlement Statement
 
COFI (Cost Of Funds Index)
An index produced by the 11th District Federal Home Loan Bank. One of several indexes used to set interest rate changes for certain Adjustable-Rate Mortgages.
 
Collateral
An asset used to secure a loan. A lender can seize it if the borrower defaults.
 
Collection
The semi-formal process used by lenders in contacting borrowers in an effort to bring a loan current. In the case of a mortgage, the mailing and formal recording of certain documents which may be required to foreclose on a property.
 
Commission
An amount, usually a percentage of the property sales price, that is collected by a real estate professional and/or mortgage lender or broker as a fee for negotiating the transaction..
 
Commitment
A promise by a lender to make a loan within a specified time period, subject to compliance with stated conditions. The lender’s obligations expire if the borrower does not close the loan prior to the expiration date of the commitment.
 
Common Area
Those portions of a building, land, and amenities in condominium and cooperative projects, which are, used by all of the apartment or condo owners. These include the hallways, parking areas, and other amenities.
 
Common Area Assessments
Fees paid (usually) to an Owners Association. Fees paid by the owners of the individual units in a condominium or cooperative, which are used to maintain the property and common areas.
 
Community Home Buyers Programs
A series of low-income loan programs offered under Fannie Mae and Freddie Mac auspices. These generally require only 3—5% down but do require PMI (Private Mortgage Insurance).
 
Comparables
Recent sales of similar properties in the area. Used as a measure of local market value to help set the current value of a property.
 
Condominium
A form of ownership in real property where the owners have title of only an apartment or townhouse. The common areas and the building exteriors are owned jointly. All owners generally have rights to all common areas and share the financial responsibility of maintaining them.
 
Consolidation Extension Modification (CEM)
See Assignment of Mortgage
 
Construction Loan
A loan used to finance construction of a new home and, sometimes, the land for a home. Depending on local custom, a construction loan may a permanent mortgage with funds disbursed as construction proceeds, or may be a short-term loan that must be repaid on completion.
 
Contingency
A condition that must be met before a contract is binding. For example, a requirement that an existing lien on the property must be cleared by a certain date.
 
Conventional Mortgage
A loose term that generally refers to a fixed-rate conforming loan, other than an FHA or VA loan.
 
Conversion
Usually refers to the process of converting a property from rental to either a condominium or cooperative property. Tenants generally have a first right of purchase for the unit they occupy.
 
Convertible ARM
An Adjustable-Rate mortgage with a borrower’s option to convert to a fixed-rate mortgage under specified conditions.
 
Cooperative (co-op)
A form of ownership in which the residents own shares in a corporation which owns the entire property. Shareholders are entitled to occupy a specific apartment and to have use of the common areas. Interest on the cooperative unit loan is tax deductible, similar to a condominium or home loan. Additionally, the percentage of monthly maintenance paid to the cooperative corporation that represents interest on the mortgage loan on the entire cooperative building, is also tax deductible to the unit owner.
 
Credit Bureau Score
Credit bureau scoring is a scientific way of assessing how likely a borrower is to pay back a loan. A credit bureau score is based on data available in the borrower’s credit report. The score measures the relative degree of risk a potential borrower represents to the lender or investor. It is not a measure of a borrower’s income, assets or bank account, although these and other factors are still considered by lenders and investors, independent of the score.
 
CRV
See Certificate of Reasonable Value (CRV)
 
Debt
An obligation, specifically, the amount owed.
 
Debt-to-Income Ratio (DTI)
Total outstanding debt as a portion of total income. Used by lenders as a measure of credit worthiness.
 
Deed
The legal document which certifies title to a property.
 
Deed of Trust
Used in place of a mortgage in some states. The deed to a property is held by a trustee (title company or other third party) with the condition that it will be conveyed to the borrower when the mortgage is paid off.
 
Deed-in-Lieu of Foreclosure
A means of avoiding foreclosure by conveying title to the lender. Dependent on local state law, the lender has the option of whether to accept a deed-in-lieu of foreclosure, to proceed with the foreclosure, or both.
 
Default
Failure to make payments within a specified period of time. A finding made by a lender prior to beginning foreclosure proceedings.
 
Delinquency
Failure to make mortgage payments when they are due. Policies vary from lender to lender but a borrower is generally reported delinquent if a payment is more than 30 days late.
 
Depreciation
A decline in the value of property; the opposite of appreciation.
 
Discount Point
A prepayment of interest equal to 1% of the mortgage amount. Also referred to as a point or origination fee. See Point, Origination Fee
 
Down Payment
A part of the purchase price, paid in cash, to cover the difference between the purchase price and the loan amount. Typically between 5% and 20% but can be more or less.
 
Due-on-Sale Clause
A provision requiring that the remaining balance due be paid if the borrower sells the property or transfers the title to another party. Virtually all mortgages today have due on sale clauses.
 
Earnest Money
Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
 
Easement
A right-of-way allowing access to, or over, a property for a specific purpose, such as for a power line, or a road for access to another property.
 
EEM
Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase
 
Eminent Domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
 
Encroachment
An illegal intrusion on another property by a fence, structure, etc.
 
Encumbrance
Anything that affects or limits the title to a property, such as a lien or mortgage, easement, or a lease or other 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
The difference between the fair market value of a property and any lien or mortgage. The net amount the owner would realize if the property were sold.
 
Escrow
Funds deposited with a third party to be delivered upon the fulfillment of a condition. A special account created to hold money for taxes and insurance, or to hold deposit money prior to closing.
 
Escrow Account
An account created for a specific purpose, such as to hold money for taxes and insurance, or to hold deposit money prior to closing.
 
Estate
The total of all the real property and personal property owned by an individual at time of an individual’s death.
 
Eviction
A legal proceeding to expel an occupant from a property.
 
Examination of Title
An abstract of report on the title of a property, taken from public records.
 
Fair Housing Act
A law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
 
Fair Market Value
The highest price for a property that a willing buyer would pay and the lowest price a willing seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
 
Fannie Mae (FNMA)
The 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. Also see Freddie Mac (FHLMC)
 
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. See FHA mortgage
 
Fee Simple
Absolute title; the highest possible interest in a property.
 
FHA mortgage
Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
 
First Mortgage
A loan used to finance the purchase of a home. The primary lien against a property.
 
First Trust Deed
See Deed Of Trust
 
Fixed Rate Mortgage
A mortgage with an interest rate that remains constant for the life of the loan. The rate is set when the loan is made and never changes. Also see Balloon Mortgage
 
Flood Insurance
Insurance against damage from flooding. A specialized insurance which must be purchased separately. Flood Insurance is only available in areas that are prone to floods.
 
Foreclosure
The legal process used to regain title to a mortgaged property if the borrower defaults. Foreclosure usually involves a forced sale of the property with the proceeds being applied to the mortgage balance.
 
Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also see Fannie Mae (FNMA)
 
FRM
See Fixed Rate Mortgage
 
Ginnie Mae (GNMA)
Government National Mortgage Association (GNMA); 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; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
 
Good-Faith Estimate
A formal estimate of the fees and charges which the borrower must pay at the closing. Lenders are required to provide a Good-Faith Estimate at the time the commitment is issued.
 
Grantee
The person or entity to whom an interest in real property is conveyed.
 
Grantor
The person or entity conveying an interest in real property.
 
Gross Monthly Income
The total amount the borrower earns per month, before any expenses are deducted. Calculated by taking annual gross income and dividing by twelve – not by adding two bi-weekly paycheck gross amounts.
 
Hazard Insurance
Insurance to protect the homeowner and the lender against physical damage to a property from fire, windstorm, vandalism, and other specified hazards. Also see Flood Insurance and Homeowner’s Insurance Policy.
 
HELP
Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the homebuying 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
Literally, a Reverse Mortgage, which allows (usually) elderly homeowners who that have a substantial equity to convert the equity into cash. A lender makes regular payments to the homeowner, with a corresponding lien building against the property. The loan must be repaid at a specified time or when the borrower no longer occupies the property.
 
Home Equity Line of Credit (HELOC)
A variable rate line of credit secured by a homeowner’s equity. The lender provides funds on demand, with a corresponding lien against the property. The loan must be repaid in installments after a specified draw period.
 
Home Equity Loan
A loan secured by a homeowner’s equity. The lender provides funds at closing, with a corresponding lien against the property. The loan is repaid in monthly payments for the term of the loan.
 
Homeowner’s Insurance Policy
A standardized form of insurance providing blanket coverage against personal liability and a wide variety of hazards. Homeowner’s policies do not include flood insurance, and may also specify additional exemptions.
 
Housing Counseling Agency
Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and homebuying.
 
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-1 Settlement Statement
See Settlement Statement
 
Hybrid ARM’s
These loans are Adjustable Rate Mortgages where the rate is fixed for a specified time period before any adjustments are made. After that, they become standard one-year ARMs. Examples are 3/1 ARMs, 5/1 ARMs and 7/1 ARMs.
 
Index
An economic indicator that is used to determine changes in the interest rate of an Adjustable Rate Mortgage (ARM). U.S. Treasury Bills and notes are the most common but there are others. The rate is periodically adjusted to the index value plus a margin.
 
Insurance
Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.
 
Interest
The charge paid for borrowing money.
 
Interest Rate
The amount of interest charged on a monthly loan payment; usually expressed as a percentage.
 
Interim Financing
See Construction Loan
 
Investment Property
Generally, any property purchased for the primary purpose of profit. The profit may be from rental income or from resale.
 
Investor
The actual source of money for the mortgage.
 
Joint Tenancy
Joint ownership by two or more persons such as husband and wife, business partners, etc. Each person has equal rights to the property and ownership passes to the survivor in the event of death.
 
Jumbo Loan
A mortgage for an amount greater than the amount eligible for purchase by Fannie Mae or Freddie Mac. Currently, this amount is above $275,000. See Non Conforming Loan
 
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.
 
Leasehold
Commonly used to mean when a tenant leases or rents a part of real property for a fixed term, such as an apartment or house. Considered in many states to be personal property.Technically, when an owner of a piece of real property enters into a very long term lease (usually 99 years) to a user who has a “leasehold estate” in the property. After the lease term, the ownership with all improvements returns to the owner.
 
Lender
Any person or entity advancing funds which are to be repaid. A general term encompassing all mortgagees and beneficiaries under deeds of trust.
 
Lender Buydown
A particular form of convertible mortgage offering a discounted interest rate at the beginning of the loan that gradually increases during the first few years of the loan. It provides lower initial payments and a stable final monthly rate, but the final rate may be somewhat higher than on a standard fixed rate mortgage. See Buy-down.
 
Liability Insurance
Insurance protection against claims alleging negligence or an action, which resulted in bodily injury or property damage to another party. It is included in most homeowner’s policies.
 
Lien
A legal claim against a property for money, such as a mortgage or a workman’s claim. In general, liens must be paid off prior to title transfer.
 
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.
 
Line of Credit
An agreement to extend credit to a borrower under specified conditions. See Home Equity Line Of Credit (HELOC)
 
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
 
Loan Origination Fee
See Origination Fee
 
Loan Servicing
The process of collecting and managing monthly payments. Often a separate company, a loan servicer processes the payments, sends statements, manages the escrow/impound accounts, and makes sure that taxes and insurance premiums made on time.
 
Loan-to-Value (LTV) Ratio
The percentage relationship between the amount of the loan and the appraised value or sales price, whichever is lower.
 
Lock in
An agreement in which the lender guarantees a specified interest rate for a certain amount of time. Extended lock in periods usually incurs an additional fee.
 
Loss mitigation
A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan
 
LTV
See Loan-to-Value (LTV) Ratio
 
Maintenance Fee
As applied to cooperatives, condominiums and planned unit developments, the amount charged each unit owner to maintain the common area. Usually a monthly fee paid as part of the budget.
 
Managing Agent
The entity as applied to cooperatives, condominiums and planned unit developments, which runs the operations and finances of the development as a whole.
 
Margin
The percentage amount added to the Index value to establish the new interest rate at each adjustment of an adjustable rate mortgage. The margin remains constant over the life of the loan.
 
Market Value
The highest price that a motivated buyer would pay, and the lowest price that a motivated seller would accept on a property. Market value is not necessarily the price that a property could actually be sold for at a given time. Also called Fair Market Value.
 
Maturity
The date on which the remaining balance of a loan financial instrument becomes due and payable. The date the mortgage must be paid off.
 
Mechanic’s Lien
A formal recorded claim against a property for work and materials for construction or repair of a property. Mechanic’s liens attach to both the building(s) and land.
 
Modification
A change in the terms of a mortgage without refinancing. Usually, a reduction in the interest rate or other change that is beneficial to the borrower.
 
Modification Extension Consolidation Agreement (MECA)
See Assignment of Mortgage
 
Mortgage
A formal document pledging a property as security for a loan. Not used in all states—see Deed of Trust.
 
Mortgage Banker
A company or individual that originates and funds mortgages, which are then sold in the secondary market.
 
Mortgage Broker
An independent company or individual, that originates—but does not fund—mortgages. A mortgage broker arranges mortgages with a variety of institutions with which they have pre-established relationships.
 
Mortgage Insurance (MI)
Insurance purchased by the borrower to partially protect the lender against loss if the borrower defaults. Normally required for loans with an LTV greater than 80% (20% down). FHA loans and most first-buyer programs require mortgage insurance regardless of the LTV.Insurance purchased for non-FHA loans is commonly called PMI (Private Mortgage Insurance). Some large lenders self-insure and do not require the buyer to purchase PMI, however, the interest rate may be slightly higher.Normally, mortgage insurance may be dropped when the LTV drops below 80%.
 
Mortgage Insurance Premium (MIP)
The premium paid by a borrower either to FHA (FHA/VA loans) or to a private company for non-government insured loans.
 
Mortgage Life/Disability Insurance
A form of insurance where the insurance amount decreases in lock step with the remaining loan balance. It is not usually required by lenders and is relatively expensive.
 
Mortgage Policy
A title insurance policy insuring a mortgagee or beneficiary under a deed of trust, against loss caused by invalid title in the borrower, or loss of priority of the mortgage or deed of trust.
 
Mortgagee
The lender in a mortgage agreement.
 
Mortgagee Clause
A clause in an insurance policy, listing the priority of claims in the event of destruction of the property insured. Generally, a mortgagee, or beneficiary under a deed of trust, is the party appearing in the clause, being paid to the amount owing under the mortgage or deed of trust before the owner is paid.
 
Mortgagor
The borrower in a mortgage agreement.
 
Negative Amortization
A condition where the loan balance goes up, rather than down, as payments are made. If a payment is not large enough to cover the interest due the difference is added to the principal. Negative amortization can occur in certain types of adjustable rate mortgages where the payments are locked or capped, but the underlying interest rates may adjust.
 
No-Cost Refinance
A refinance where the fees and charges are added to the new mortgage amount instead of being paid up front.
 
Non-Conforming Loan
A mortgage, which does not conform to credit or other standards or to the maximum loan, limits set by Fannie Mae and Freddie Mac. See Jumbo Loan
 
Note
A signed, formal document, obligating a borrower to repay a loan at a stated interest rates during a specified period of time.
 
Note Rate
The stated interest rate on a mortgage or other loan agreement.
 
Offer
Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
 
Origination
The process of making a loan; the sequence of steps needed to document borrower assets and credit, property appraisal, and so on.
 
Origination Fee
A fee charged by a lender to cover certain expenses associated with the loan origination. Usually used interchangeably with points or discount points. Usually stated as a percentage of the face value of the loan (points).
 
Owner Occupied
Property physically occupied by the owner.
 
Owner’s Policy
Title insurance for the owner of property, rather than a lien holder.
 
Partial Claim
A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.Party WallThe wall between two adjoining properties, such as between apartments in a condominium.
 
Payoff
The payment in full of an existing loan or other lien. Includes outstanding principal, outstanding interest, and any other amounts the borrower may owe the lender.
 
Percolation Test
A test to determine soil seepage capacity for properties where a septic tank is in use or being considered.
 
Periodic Cap
See Caps
 
Permanent Financing
A mortgage that replaces a construction loan after the construction is complete.
 
Personal Property
In most states, any property that is not real property. (Definitions vary.) See Real Property
 
PITI
Principal, Interest, Taxes, and Insurance. The four components (for most homeowners) that make up a monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage; the tax and insurance components are accumulated in an escrow account to make payments when they are 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 with privately-owned lots and buildings, and jointly owned common areas and facilities.
 
Point
A point is equal to 1% of the mortgage. One point on a $100,000 mortgage would be $1,000, for example. Also known as discount points, this payment is simply interest that is paid up-front. Most lenders offer mortgages with several combinations of points and interest rates; generally, more points means a lower interest rate, less points means a higher rate.
 
Pre-Approval
An approval for credit issued by a lender before the borrower has selected a property. Usually issued for a stated maximum loan amount and under certain conditions and assumptions regarding interest rates and other factors.
 
Pre-foreclosure sale
Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
 
Premium
An amount paid on a regular schedule by a policyholder that maintains insurance coverage.
 
Prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full when a property is sold. Also where additional or augmented monthly payments to reduce the loan balance prematurely.
 
Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
 
Prequalification
A written opinion of the ability of a borrower to qualify for a home loan.
 
Prime Rate
The rate charged by banks to their preferred customers. Often used as the index for Home Equity Credit Lines but only rarely for first mortgages.
 
Principal
The amount of debt, not including interest, left on a loan; the total amount of a loan before any payments are made.
 
Principal Balance
The remaining balance on a mortgage. The principal balance does not include interest or any other charges.
 
Private Mortgage Insurance (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. See Mortgage Insurance (MI)
 
Property Tax
Generally, a tax levied on both real and personal property; the amount of the tax is dependent on the value of the property.
 
Proprietary Lease
Most commonly used in relation to stock cooperatives, whereby the owners of stock lease units (apartments).
 
PUD
See Planned Unit Development (PUD)
 
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 Mortgage
A mortgage used for the acquisition of a property.
 
Qualifying Ratios
A measure of credit worthiness. Ratios of debt-to-income which are used to determine whether a borrower can qualify for a mortgage. Less important than previously, qualification ratios are being replaced by FICO scores.
 
Quitclaim Deed
A deed that transfers all interest or title, if any, that a grantor may have at the time the conveyance is made. No warranty is made.
 
Radon
A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
 
Rate Lock
A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time at a specific cost. Extended lock in periods usually incur an additional fee.
 
Real Estate Agent
An individual who is licensed to negotiate and arrange for the sale of Real Estate.
 
Real Estate Settlement Procedures Act (RESPA)
A law and corresponding consumer protection regulations which, among other requirements, specifies that lenders must state an Annual Percentage Rate for each loan.
 
Real Estate Tax
A tax levied on real property. The amount of tax being dependent on the value of the property is generally expressed as a uniform rate per thousand of valuation. The taxes are imposed by various governmental agencies and municipalities which include, but are not limited to: city, county, town, village and school.
 
Real Property
Land and all that is attached with it, such as buildings, trees, minerals, easements, rights of way, all items of a permanent nature.
 
Realtor
A Real Estate agent who is an active member of a board of realtors that is affiliated with the National Association of Realtors.
 
Recording
A registration of the details of a properly executed legal document, such as a deed, mortgage, satisfaction of mortgage, etc., thus making it a part of the public record.
 
Refinance
The process of paying off one loan with the proceeds from a new loan using the same property as security, usually, for the purpose of obtaining a lower interest rate, converting accumulated equity into cash, or both. For more information.
 
Remaining Balance
The amount of principal that has not yet been repaid. See Principal Balance
 
Remaining Term
The original amortization term less the number of payments that have been applied. The number of payments yet to be made.
 
Replacement Reserve
Money accumulated in an escrow account to replace common property (roofing, heating unit, etc.) in a condominium, or cooperative.
 
Rescission
To void or cancel in such a way as to treat the mortgage as if it never existed. In a refinance transaction borrowers are given a 3 day right of rescission from the day of closing, before the lender will fund the loan.
 
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
See Home Equity Conversion Mortgage
 
Revolving Debt
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.
 
Right Of First Refusal
A provision in an agreement that requires the owner of a property to offer the first opportunity to purchase a property before it is offered for sale to others.
 
Right of Way
An easement providing access to an adjoining property. See Easement.
 
Rollover
In current usage, the conversion of a construction loan to the permanent financing when construction is complete.
 
Satisfaction (of a Mortgage)
An instrument provided by the lender as evidence that the loan has been paid off and the lien is satisfied. Usually, it is up to the borrower to record the document. To remove the lien from the public record.
 
Second Mortgage
A mortgage with lower rights than a first mortgage on the same property. In the event of a foreclosure, the first mortgage must be satisfied before any payment can go to the second.
 
Secondary Market
An infrastructure where the vast majority of mortgages are sold. Individual mortgages grouped together into large pools called Mortgage Backed Securities ("MBS"). Shares in MBSs are sold to investors, providing funds for more mortgages. Fannie Mae and Freddie Mac are two large purchasers of, primarily, fixed rate mortgages.
 
Servicing, Servicer
See Loan Servicing
 
Settlement
Another name for closing .
 
Settlement Statement
A statement that shows the seller’s net proceeds and the buyer’s net payment at closing. A standard form itemizing all of the monies paid at closing, including Real Estate commissions, loan fees, points, and initial escrow amounts. Also known as a HUD-1.
 
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 Loan
Any mortgage or lien(s) that has a priority lower than the first mortgage.
 
Survey
A drawing or map, showing the boundaries of a property, easements, rights of way, encroachments, and other limits. The process of creating or verifying a survey map, usually required by a lender prior to making a loan.
 
Sweat Equity
An owner’s labor or services in the construction or rehabilitation of a property, instead of, or in addition to cash
 
Tax Deed
A deed to a property purchased at a public sale. Tax Sale
 
Tax Lien
A claim against a property for due and unpaid taxes.
 
Tax Sale
The sale of a property, usually under a court order, to satisfy a tax lien.
 
Tenancy by Entirety
In some states, a type of joint ownership of property where a husband and wife are considered as one person, essentially providing an automatic right of survivorship.
 
Tenancy in Common
Joint ownership by two or more persons. Each person has equal rights to the property but without any right of survivorship. Ownership does not pass to the others in the event of death.
 
Tenancy in Partnership
A form of ownership where the title is in the name of the partnership, rather than in the names of the individual partners.
 
Title
Detailed documentation evidencing ownership or other right to a property. In Real Estate, the deed.
 
Title Insurance
An insurance against a loss (up to a specified amount) resulting from any dispute over ownership or other title defect.
 
Title Search
An examination of the public title records to ensure that the seller is the recognized owner of the property and that there are no unsettled liens or other claims outstanding against the property.
 
Townhouse
A form of ownership in real property similar to a condominium or cooperative. Generally, a series of residential units which share common walls with the adjacent units, but stand on individual lots. Owners have title to the unit and lot that they occupy. The common areas and the building exteriors are owned jointly.
 
Transfer Tax, Transfer Fee
Fees and taxes imposed by state and local governments when title passes from one owner to another.
 
Treasury Indexes
A series of indexes that are used the basis for determining interest rate changes for many Adjustable Rate Mortgages.
 
Truth-in-Lending
A federal law and supporting regulations which require lenders to fully disclose, in writing, the terms and conditions of a loan, mortgage, or other credit. Lenders are required to specify the rate, term, fees, and other characteristics, including an Annual Percentage Rate (APR).
 
Two Step Mortgage (Balloon Reset)
A form of Adjustable Rate Mortgage with a one-time rate adjustment at the end of either five of seven years. The rate then remains constant for the remaining term.
 
Underwriting
The process of verifying the documentation and analyzing the risk associated with granting a mortgage.
 
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.
 
VA mortgage
A residential mortgage made to an eligible military veteran. The loan is guaranteed by the Department of Veterans Affairs to protect the lender against loss in the event of default.
 
Warranty Deed
A deed in which the seller guarantees that title is free and clear of encumbrances other than any stated in the contract or deed. See Quitclaim Deed
 
Zoning
Specification, by a municipal or city authority, of areas for particular purposes; the type of use (residential, commercial, etc.) allowed for a property located within a specified area.
 
These definitions are provided for informational purposes only. William Scofield, LLC shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.
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