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-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.
Acceptance
An offeree’s consent
to enter into a contract and be bound by the terms of the offer.
Additional principal
payment
A payment by a
borrower of more than the scheduled principal amount due in order to
reduce the remaining balance on the loan.
Adjustable Mortgage
Loan
Any mortgage that does
not have a fixed interest rate and a fixed payment for the term of
the loan, or does not amortize to zero at the end of the set term,
when required payments are made on time.
Adjustable Rate
Mortgage
A mortgage in which
the interest rate is adjusted periodically according to the movement
in a pre-selected index.
Adjusted basis
The original cost of a
property plus the value of any capital expenditures for improvements
to the property minus any depreciation taken
Adjustment date
The date on which the
interest rate changes for an adjustable-rate mortgage (ARM).
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Adjustment Interval
For an adjustable rate
mortgage, the time between changes in the interest rate charged. The
most common adjustment intervals are one, three or five years.
Adjustment period
The period that
elapses between the adjustment dates for an adjustable-rate mortgage
(ARM).
Administrator
A person appointed by
a probate court to administer the estate of a person who died
intestate.
Agreement of Sale
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.
Amenity
A feature of real
property that enhances its attractiveness and increases the
occupant’s or user’s satisfaction although the feature is not
essential to the property’s use. Natural amenities include a
pleasant or desirable location near water, scenic views of the
surrounding area, etc. Human-made amenities include swimming pools,
tennis courts, community buildings, and other recreational
facilities.
Amortization
A payment plan, which
enables the borrower to reduce his debt gradually through monthly
payments of principal.
Amortization schedule
A timetable for
payment of a mortgage loan. An amortization schedule shows the
amount of each payment applied to interest and principal and shows
the remaining balance after each payment is made.
Amortization term
The amount of time
required to amortize the mortgage loan. The amortization term is
expressed as a number of months.
Amortize
Reduce a debt by
regular payments of both principal and interest.
Amortization Schedule
A timetable for
payment of a mortgage showing the amount of each payment applied to
interest and principal and the remaining balance.
Annual Percentage Rate
(APR)
The total yearly cost
of a mortgage stated as a percentage of the loan amount: includes
the base interest rate, primary mortgage insurance, and loan
origination fee (points)
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Annuity
An amount paid yearly
or at other regular intervals, often on a guaranteed dollar basis.
Application
A form used to apply
for a mortgage loan and to record pertinent information concerning a
prospective mortgagor and the proposed security.
Application Fee
The fee charged by the
lender to the borrower for applying for a loan.
Appraised value
An opinion of a
property's fair market value, based on an appraiser's knowledge,
experience, and analysis of the property.
Appraiser
A person qualified by
education, training, and experience to estimate the value of real
property and personal property.
Appraisal
A professional opinion
of the market value of a property.
Appreciation
An increase in the
value of a house due to changes in market conditions or other
causes.
Assessed Value
The valuation placed
upon property by a public tax assessor for purposes of taxation.
Assessment
The process of placing
a value on property for the strict purpose of taxation. May also
refer to a levy against property for a special purpose, such as a
sewer assessment.
Assessor
A public official who
establishes the value of a property for taxation purposes.
Asset
Anything of monetary
value that is owned by a person. Assets include real property,
personal property, and enforceable claims against others (including
bank accounts, stocks, mutual funds, and so on).
Assignment
The transfer of a
mortgage from one person to another.
Assumable Loan
These loans may be
passed on from a seller of a home to the buyer. The buyer "assumes"
all outstanding payments.
Assumption clause
A provision in an
assumable mortgage that allows a buyer to assume responsibility for
the mortgage from the seller. The loan does not need to be paid in
full by the original borrower upon sale or transfer of the property.
Assumption fee
The fee paid to a
lender (usually by the purchaser of real property) resulting from
the assumption of an existing mortgage.
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.
Attorney-in-fact
One who holds a power
of attorney from another to execute documents on behalf of the
grantor of the power. 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.
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- B -
Balance sheet
A financial statement
that shows assets, liabilities, and net worth as of a specific date.
Bankrupt
A person, firm, or
corporation that, through a court proceeding, is relieved from the
payment of all debts after the surrender of all assets to a
court-appointed trustee.
Bankruptcy
A proceeding in a
federal court in which a debtor who owes more than his or her assets
can relieve the debts by transferring his or her assets to a
trustee.
Before-tax income
Income before taxes
are deducted.
Beneficiary
The person designated
to receive the income from a trust, estate, or a deed of trust.
Bill of sale
A written document
that transfers title to personal property.
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. Broker (See Real Estate Broker)
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Blanket insurance
policy
A single policy that
covers more than one piece of property (or more than one person).
Bond
An interest-bearing
certificate of debt with a maturity date. An obligation of a
government or business corporation. A real estate bond is a written
obligation usually secured by a mortgage or a deed of trust.
Borrower
One who receives funds
with the expressed or implied intention of repaying the loan in
full.
Bridge loan
A form of second trust
that is collateralized by the borrower's present home (which is
usually for sale) in a manner that allows the proceeds to be used
for closing on a new house before the present home is sold.
Broker
An individual in the
business of assisting in arranging funding or negotiating contracts
for a client but who does not loan the money himself. Brokers
usually charge a fee or receive a commission for their services.
Building code
Local regulations that
control design, construction, and materials used in construction.
Building codes are based on safety and health standards.
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.
Buy down
Money advanced by an
individual (seller, builder, etc.) to reduce monthly payments for a
home mortgage either during the entire term or for an initial period
of years.
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Call option
A provision in the
mortgage that gives the mortgagee the right to call the mortgage due
and payable at the end of a specified period for whatever reason.
Capital expenditure
The cost of an
improvement made to extend the useful life of a property or to add
to its value.
Capital improvement
Any structure or
component erected as a permanent improvement to real property that
adds to its value and useful life.
Cap
A provision of an ARM
limiting how much the interest rate or mortgage payments may
increase.
Cash Out
A loan transaction in
which the borrower receives funds at the time of closing.
Cash-out refinance
A refinance
transaction in which the amount of money received from the new loan
exceeds the total of the money needed to repay the existing first
mortgage, closing costs, points, and the amount required to satisfy
any outstanding subordinate mortgage liens.
Certificate of deposit
A document written by
a bank or other financial institution that is evidence of a deposit,
with the issuer’s promise to return the deposit plus earnings at a
specified interest rate within a specified time period. Certificate
of Eligibility A document issued by the federal government
certifying a veteran’s eligibility for a Department of Veterans
Affairs (VA) mortgage. Certificate of Reasonable Value (CRV) A
document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.
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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.
Chain of title
The history of all of
the documents that transfer title to a parcel of real property,
starting with the earliest existing document and ending with the
most recent.
Change frequency
The frequency (in
months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
Chattel
Another name for
personal property.
Claim
An amount requested of
an insurer, by a policyholder or a claimant, for an insured loss.
Clear title
A title that is free
of liens or legal questions as to ownership of the property
Closing
The occasion where a
sale is finalized; the buyer signs the mortgage, and closing costs
are paid. Also called "settlement."
Closing Costs
Expenses (over and
above the price of the property) incurred by buyers and sellers in
transferring ownership of a property. Also called "settlement
costs."
Closing cost item
A fee or amount that a
homebuyer must pay at closing for a single service, tax, or product.
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Closing Day
The day on which the
formalities of a real estate sale are concluded. The certificate of
title, abstract, and deed are generally prepared for the closing by
an attorney and this cost charged to the buyer. The buyer signs the
mortgage, and closing costs are paid. The final closing merely
confirms the original agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim
or encumbrance, which adversely affects the marketability of title.
Co-Borrower
An additional borrower
on a loan. A co-borrower's obligation on a loan are the same as all
other borrowers.
Coinsurance
A sharing of insurance
risk between the insurer and the insured. Coinsurance depends on the
relationship between the amount of the policy and a specified
percentage of the actual value of the property insured at the time
of the loss.
Coinsurance clause
A provision in a
hazard insurance policy that states the amount of coverage that must
be maintained -- as a percentage of the total value of the property
-- for the insured to collect the full amount of a loss.
Collateral
An asset (such as a
car or a home) that guarantees the repayment of a loan. The borrower
risks losing the asset if the loan is not repaid according to the
terms of the loan contract.
Collection
The efforts used to
bring a delinquent mortgage current and to file the necessary
notices to proceed with foreclosure when necessary.
Co-maker
A person who signs a
promissory note along with the borrower. A co-maker's signature
guarantees that the loan will be repaid, because the borrower and
the co-maker are equally responsible for the repayment.
Commission
Money paid to a real
estate agent or broker by the seller as compensation for finding a
buyer and completing the sale.
Commitment Letter
A formal offer by a
lender stating the terms under which it agrees to loan money to a
homebuyer.
Common area
assessments
Levies against
individual unit owners in a condominium or planned unit development
(PUD) project for additional capital to defray homeowners'
association costs and expenses and to repair, replace, maintain,
improve, or operate the common areas of the project.
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Common areas
Those portions of a
building, land, and amenities owned (or managed) by a planned unit
development (PUD) or condominium project's homeowners' association
(or a cooperative project's cooperative corporation) that are used
by all of the unit owners, who share in the common expenses of their
operation and maintenance. Common areas include swimming pools,
tennis courts, and other recreational facilities, as well as common
corridors of buildings, parking areas, means of ingress and egress,
etc.
Common law
An unwritten body of
law based on general custom in England and used to an extent in the
United States.
Community property
In some western and
southwestern states, a form of ownership under which property
acquired during a marriage is presumed to be owned jointly unless
acquired as separate property of either spouse.
Comparables
A abbreviation for
comparable properties used for comparative purposes in the appraisal
process; facilities of reasonably the same size and location with
similar amenities; properties which have been recently sold, which
have characteristics similar to property under consideration,
thereby indicating the approximate fair market value of the subject
property.
Compound interest
Interest paid on the
original principal balance and on the accrued and unpaid interest.
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.
Condominium conversion
Changing the ownership
of an existing building (usually a rental project) to the
condominium form of ownership.
Condominium hotel
A condominium project
that has rental or registration desks, short-term occupancy, food
and telephone services, and daily cleaning services and that is
operated as a commercial hotel even though the units are
individually owned.
Construction Loan
A short-term loan for
funding the cost of construction. The lender advances funds to the
builder as the work progresses.
Consumer reporting
agency (or bureau)
An organization that
prepares reports that are used by lenders to determine a potential
borrower's credit history. The agency obtains data for these reports
from a credit repository as well as from other sources.
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Contingency
A condition that must
be met before a contract is legally binding.
Contract
An oral or written
agreement to do or not to do a certain thing.
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
Any mortgage that is
not insured or guaranteed by the federal government.
Convertibility clause
A provision in some
adjustable-rate mortgages (ARMs) that allows the borrower to change
the ARM to a fixed-rate mortgage at specified time.
Convertible Arm
An adjustable-rate
mortgage that can be converted to a fixed-rate mortgage under
specified conditions.
Coverage
The amount of
protection, usually expressed in a percentage of the total claim
amount, an insured receives under a certificate.
Cooperative (co-op)
A type of multiple
ownership in which the residents of a multiunit housing complex own
shares in the cooperative corporation that owns the property, giving
each resident the right to occupy a specific apartment or unit.
Cooperative
Corporation
A business trust
entity that holds title to a cooperative project and grants
occupancy rights to particular apartments or units to shareholders
through proprietary leases or similar arrangements.
Cooperative Housing
An apartment building
or a group of dwellings owned by a corporation, the stockholders of
which are the residents of the dwellings. It is operated for their
benefit by their elected board of directors. In a cooperative, the
corporation or association owns title to the real estate. A resident
purchases stock in the corporation, which entitles him to occupy a
unit in the building or property owned by the cooperative. While the
resident does not own his unit, he has an absolute right to occupy
his unit for as long as he owns the stock.
Cooperative mortgages
Mortgages related to a
cooperative project.
Cooperative project
A residential or
mixed-use building wherein a corporation or trust holds title to the
property and sells shares of stock representing the value of a
single apartment unit to individuals who, in turn, receive a
proprietary lease as evidence of title.
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Corporate relocation
Arrangements under
which an employer moves an employee to another area as part of the
employer's normal course of business or under which it transfers a
substantial part or all of its operations and employees to another
area because it is relocating its headquarters or expanding its
office capacity.
Cost of funds index
(COFI)
An index that is used
to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans. It represents the weighted-average cost of
savings, borrowings, and advances of the 11th District members of
the Federal Home Loan Bank of San Francisco.
Covenant
A clause in a mortgage
that obligates or restricts the borrower and that, if violated, can
result in foreclosure.
Commitment
A written letter of
agreement detailing the terms and conditions by which the lender
will lend and the borrower will borrow funds to finance a home.
Credit history
A record of an
individual's open and fully repaid debts. A credit history helps a
lender to determine whether a potential borrower has a history of
repaying debts in a timely manner.
Credit life insurance
A type of insurance
often bought by mortgagors because it will pay off the mortgage debt
if the mortgagor dies while the policy is in force.
Creditor
A person to whom money
is owed.
Credit Report
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.
Credit repository
An organization that
gathers, records, updates, and stores financial and public records
information about the payment records of individuals who are being
considered for credit.
Cure
A loan that is removed
from a delinquency status with no loss to the insurer.
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-D-
Deed-in-lieu
A deed given by a
mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.
Also called a "voluntary conveyance."
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 on a timely basis or to comply with other
conditions of a mortgage.
Deficiency Judgment
A court order to pay
the balance owed on a loan if the proceeds from the sale of the
security are insufficient to pay off the loan. Deficiency judgments
are not allowed in all states.
Delinquency
A loan in which a
payment is overdue but not yet in default.
Deposit
A sum of money given
to bind the sale of real estate, or a sum of money given to ensure
payment or an advance of funds in the processing of a loan.
Depreciation
A decline in the value
of property; the opposite of "appreciation."
Discount Points
See Points.
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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.
Dower
The rights of a widow
in the property of her husband at his death.
Down Payment
The part of the
purchase price, which the buyer pays in cash and does not finance
with a mortgage
Due-on-sale provision
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.
Due-on-transfer
provision
This terminology is
usually used for second mortgages.
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- E -
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 down payment. 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.
Effective age
An appraiser’s
estimate of the physical condition of a building. The actual age of
a building may be shorter or longer than its effective age.
Effective gross income
Normal annual income
including overtime that is regular or guaranteed. The income may be
from more than one source. Salary is generally the principal source,
but other income may qualify if it is significant and stable.
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.
Employer-assisted
housing
A special Fannie Mae
housing initiative that offers several different ways for employers
to work with local lenders to develop plans to assist their
employees in purchasing homes.
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.
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Endorser
WWW.RAJHOMES.COM
A person who signs
ownership interest over to another party. Contrast with co-maker.
Equal Credit
Opportunity Act (ECOA)
A federal law that
requires lenders and other creditors to make credit equally
available without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of income from
public assistance programs.
Equity
The difference between
the market value of a property and the homeowner's outstanding
mortgage balance.
Equity Loan
A loan based on the
borrower's equity in his or her home. Prior to closing; also, an
account held by the lender into which a homeowner pays money for
taxes and insurance.
Escrow account
The account in which a mortgage
servicer holds the borrower’s escrow payments prior to paying
property expenses.Escrow analysis.
The periodic
examination of escrow accounts to determine if current monthly
deposits will provide sufficient funds to pay taxes, insurance, and
other bills when due.
Escrow collections
Funds collected by the servicer and
set aside in an escrow account to pay the borrower’s property taxes,
mortgage insurance, and hazard insurance. Escrow disbursements.
The use of escrow
funds to pay real estate taxes, hazard insurance, mortgage
insurance, and other property expenses as they become due.
Escrow payment
The portion of a mortgagor’s monthly
payment that is held by the servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other items as
they become due. Estate.
The ownership interest
of an individual in real property. The sum total of all the real
property and personal property owned by an individual at time of
death.
Eviction
The lawful expulsion
of an occupant from real property.
Examination of title
The report on the
title of a property from the public records or an abstract of the
title.
Exclusive listing
A written contract
that gives a licensed real estate agent the exclusive right to sell
a property for a specified time, but reserving the owner’s right to
sell the property alone without the payment of a commission.
Executor
A person named in a
will to administer an estate
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- F -
Fair Credit Reporting
Act
A consumer protection
law that regulates the disclosure of consumer credit reports by
consumer/credit reporting agencies and establishes procedures for
correcting mistakes on one's credit record.
Fair-market-value
The highest price that
a buyer, willing but not compelled to buy would pay, and the lowest
a seller, willing but not compelled to sell, would accept.
FDIC
(Federal Deposit
Insurance Corporation). Provides insurance of accounts for
institutions whose deposits were formerly covered by the Federal
Savings & Loan Insurance Corporation. (FSLIC).
Fee simple
The greatest possible
interest a person can have in real estate.
Fee simple estate
An unconditional,
unlimited estate of inheritance that represents the greatest estate
and most extensive interest in land that can be enjoyed. It is of
perpetual duration. When the real estate is in a condominium
project, the unit owner is the exclusive owner only of the air space
within his or her portion of the building (the unit) and is an owner
in common with respect to the land and other common portions of the
property.
FHA
(Federal Housing
Administration). A division of the Department of Housing and Urban
Development. The FHA's main activity is the insuring of residential
mortgage loans made by private lenders. It sets standards for
construction and underwriting. FHA neither lends money, nor plans,
nor constructs housing.
FHA Loan
Government loans are
loans that are guaranteed or purchased by government organizations.
Two of the most popular Government Loans are the Federal Housing
Administration (FHA) and the Department of Veterans Affairs (VA).
FHFB
(Federal Housing
Finance Board). It oversees the credit functions of the twelve
regional Federal Home Loan Banks.
FHLBB
(Federal Home Loan
Bank Board). A regulatory and supervisory agency for federally
charted savings institutions, which oversees the operations of the
FSLIC and FHLMC. This agency was abolished by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989. (See
FIRREA.)
FHLMC
(Federal Home Loan
Mortgage Corporation, Freddie Mac). A private corporation authorized
by Congress, which became an independent, stockholder-owned
government corporation with the passage of FIRREA. FHLMC promotes
the flow of funds into the housing markets by purchasing
conventional mortgages in the secondary market and selling
securities backed by those mortgages in the capital market.
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Finance Charge
The total dollar
amount your loan will cost you. It includes all interest payments
for the life of the loan, any interest paid at closing, your
origination fee and any other charges paid to the lender and/or
broker. Appraisal, credit report and title search fees are not
included in the finance charge calculation.
Finder's fee
A fee or commission
paid to a mortgage broker for finding a mortgage loan for a
prospective borrower.
FIRE
(Financial
Institutions Reform, Recovery and Enforcement Act of 1989). An act
signed into law in August 1989, by President Bush that restructured
the thrift regulatory an insurance system.
Firm commitment
A lender’s agreement
to make a loan to a specific borrower on a specific property.
First Mortgage
The mortgage that has
first claim in the event of default.
Fixed installment
The monthly payment
due on a mortgage loan.
Fixed-Rate Mortgage
(FRM) A mortgage in
which the interest rate does not change during the entire term of
the loan.
FNMA
(Federal National
Mortgage Association, Fannie Mae). A government-sponsored
corporation, owned solely by private investors, created to provide
support to the secondary market for FHA and VA mortgages and
conventional mortgages.
Fixture
Personal property that
becomes real property when attached in a permanent manner to real
estate.
Flood insurance
Insurance that
compensates for physical property damage resulting from flooding. It
is required for properties located in federally designated flood
areas.
Forfeiture
The loss of money,
property, rights, or privileges due to a breach of legal obligation.
Foreclosure
The process by which a
mortgage property may be sold when a mortgage is in default.
Fully amortized ARM
An adjustable-rate
mortgage (ARM) with a monthly payment that is sufficient to amortize
the remaining balance, at the interest accrual rate, over the
amortization term.
Full Recasting
Setting the P&I
payments to the level that will fully amortize the loan's
outstanding balance over the remaining term using the fully indexed
accrual rate at the recasting point.
Fully Indexed Accrual
Rate
The interest (accrual)
rate resulting from the index at closing (or at another point in the
loan) plus the lender's full spread, rounded as prescribed in the
loan documents (often to the nearest 1/8th of 1%).
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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.
Good Faith Estimate
An estimate of
charges, which a borrower is likely to incur in connection with a
loan closing.
Graduated Payment
Mortgage
(GPM) A mortgage where
the payments are scheduled to increase, usually annually, for a set
number of years, and then level off. GPM can be used with either a
fixed or adjustable interest rate, and usually has a 30-year term.
Grantee
That party in the deed
who is the buyer or recipient.
Grantor
That party in the deed
who is the seller or giver.
Gross Monthly Income
The total amount the
borrower earns per month, not counting any taxes or expenses. Often
used in calculations to determine whether a borrower qualifies for a
particular loan.
Growing Equity
Mortgage
(GEM) A fixed rate,
graduated payment mortgage with small initial payments that increase
each year so that the loan pays off in a shortened term, usually 15
years.
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Hazard Insurance
Insurance to protect
the homeowner and the lender against physical damage to a property
from fire, wind, vandalism, or other hazards.
Homeowner's Insurance
An insurance policy
that combines liability coverage and hazard insurance.
Homeowner's Warranty
A type of insurance
that covers repairs to specified parts of a house for a specific
period of time.
Housing Ratio
The ratio of the
monthly housing payment to total gross monthly income. Also called
Payment-to-Income Ratio or Front-End Ratio.
HUD
(Department of Housing
and Urban Development). A cabinet department responsible for the
implementation and administration of government housing and urban
development programs.
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Income property
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Real estate developed
or improved to produce income.
Index
(Also called "Rate
Index"). A regularly published rate, independent of the lending
institution, that measures the prevailing cost of funds, and is used
periodically with the margin to set AML accrual rates.
Initial Borrower
Interest Rate
The rate on which the
borrower's first payment is calculated.
Initial Borrower
Payment Rate
The annual interest
rate used to calculate the borrower's initial cash payment.
Inflation
An increase in the
amount of money or credit available in relation to the amount of
goods or services available, which causes an increase in the general
price level of goods and services. Over time, inflation reduces the
purchasing power of a dollar, making it worth less.
Initial interest rate
The original interest
rate of the mortgage at the time of closing.
Installment
The regular periodic
payment that a borrower agrees to make to a lender.
Installment loan
Borrowed money that is
repaid in equal payments, known as installments. A furniture loan is
often paid for as an installment loan.
Insurable title
A property title that
a title insurance company agrees to insure against defects and
disputes.
Insurance
A contract that
provides compensation for specific losses in exchange for a periodic
payment. An individual contract is known as an insurance policy, and
the periodic payment is known as an insurance premium.
Insurance binder
A document that states
that insurance is temporarily in effect. Because the coverage will
expire by a specified date, a permanent policy must be obtained
before the expiration date.
Insured mortgage
A mortgage that is
protected by the Federal Housing Administration (FHA) or by private
mortgage insurance (MI). If the borrower defaults on the loan, the
insurer must pay the lender the lesser of the loss incurred or the
insured amount
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Interest
The fee charged for
borrowing money.
Interest accrual rate
The percentage rate at
which interest accrues on the mortgage. In most cases, it is also
the rate used to calculate the monthly payments, although it is not
used for an adjustable-rate mortgage (ARM) with payment change
limitations.
Interest Rate
The percentage of an
amount of money, which is paid for its use for a specified time.
Interest Rate Cap
A provision of an ARM
limiting how much interest rates may increase per adjustment period.
Interest rate ceiling
For an adjustable-rate
mortgage (ARM), the maximum interest rate, as specified in the
mortgage note.
Interest rate floor
For an adjustable-rate
mortgage (ARM), the minimum interest rate, as specified in the
mortgage note.
Investment property
A property that is not
occupied by the owner.
IRA (Individual
Retirement Account)
A retirement account
that allows individuals to make tax-deferred contributions to a
personal retirement fund. Individuals can place IRA funds in bank
accounts or in other forms of investment such as stocks, bonds, or
mutual funds.
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Joint tenancy
A form of co-ownership
that gives each tenant equal interest and equal rights in the
property, including the right of survivorship.
Judgment
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.
Judgment lien
A lien on the property
of a debtor resulting from the decree of a court.
Judicial foreclosure
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.
Jumbo Loans
Jumbo, or
non-conforming, is a term used to describe a loan that does not
conform to Fannie Mae or Freddie Mac guidelines. The typical Jumbo
loan exceeds the maximum loan amounts described above.
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Late charge
The penalty a borrower
must pay when a payment is made a stated number of days (usually 15)
after the due date.
Lease
A written agreement
between the property owner and a tenant that stipulates the
conditions under which the tenant may possess the real estate for a
specified period of time and rent.
Leasehold estate
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.
Legal description
A property
description, recognized by law that is sufficient to locate and
identify the property without oral testimony.
Lender
An institution that
makes loans to borrowers on real estate.
Liabilities
A person's financial
obligations. Liabilities include long-term and short-term debt, as
well as any other amounts that are owed to others.
Liability insurance
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.
Lien
A legal claim against
a property that must be paid when the property is sold.
Lifetime Cap
A provision of an ARM
that limits the total increase in interest rates over the life of
the loan.
Lifetime payment cap
For an adjustable-rate
mortgage (ARM), a limit on the amount that payments can increase or
decrease over the life of the mortgage.
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.
Liquid asset
A cash asset or an
asset that is easily converted into cash.
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Loan
A sum of borrowed
money (principal) that is generally repaid with interest.
Loan Commitment
Formal offer by a
lender stating the terms under which it agrees to loan money to a
homebuyer.
Loan origination
The process by which a
mortgage lender brings into existence a mortgage secured by real
property.
Loan Servicing
The collection of
mortgage payments from borrowers and related responsibilities of a
loan servicer.
Loan -To-Value
(LTV). The
loan-to-value ratio (LTV) is the original loan amount divided by the
lower of the sales price or the appraised value.
Lock
The period, expressed
in days, during which a lender will guarantee a rate.
Lock-in period
The time period during
which the lender has guaranteed an interest rate to a borrower.
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Marketable Title
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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.
Master association
A homeowners'
association in a large condominium or planned unit development (PUD)
project that is made up of representatives from associations
covering specific areas within the project. In effect, it is a
"second-level" association that handles matters affecting the entire
development, while the "first-level" associations handle matters
affecting their particular portions of the project.
Maturity
The date on which the
principal balance of a loan, bond, or other financial instrument
becomes due and payable.
Merged credit report
A credit report that
contains information from three credit repositories. When the report
is created, the information is compared for duplicate entries. Any
duplicates are combined to provide a summary of a your credit.
Modification
Margin
(Also called
"Spread"). The amount the lender adds to the index to determine the
Fully Indexed Accrual Rate.
Money market account
A savings account that
provides bank depositors with many of the advantages of a money
market fund. Certain regulatory restrictions apply to the withdrawal
of funds from a money market account.
Money market fund
A mutual fund that
allows individuals to participate in managed investments in
short-term debt securities, such as certificates of deposit and
Treasury bills.
Monthly Housing
Expense
Total principal,
interest, taxes, and insurance paid by the borrower on a monthly
basis. Used with gross income to determine affordability.
Monthly payment
mortgage
A mortgage that
requires payments to reduce the debt once a month.
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Mortgage
A legal document that
pledges a property to the lender as security for a payment of a
debt.
Mortgage Banker
A company that
originates mortgages exclusively for resale in the secondary market.
Mortgage Broker
A company that for a
fee matches borrowers with lenders.
Mortgage Insurance
Premium
(MIP). The fee paid to
FHA or a private insurer for mortgage insurance.
Mortgagee
The lender in a
mortgage agreement.
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 life
insurance
A type of term life
insurance often bought by mortgagors. The amount of coverage
decreases as the principal balance declines. In the event that the
borrower dies while the policy is in force, the debt is
automatically satisfied by insurance proceeds.
Mortgage Note
A written agreement to
repay a loan. The agreement is secured by a mortgage, serves as
proof of 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.
Mortgagor
The borrower in a
mortgage agreement.
Multidwelling units
Properties that
provide separate housing units for more than one family, although
they secure only a single mortgage.
Multifamily mortgage
A residential mortgage
on a dwelling that is designed to house more than four families,
such as a high-rise apartment complex.
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Negative Amortization
(Also called "Deferred
Interest"). If the payments are too small to cover the interest due
on a loan, the remaining interest owed is added to the outstanding
loan balance, causing negative amortization.
Net cash flow
The income that
remains for an investment property after the monthly operating
income is reduced by the monthly housing expense, which includes
principal, interest, taxes, and insurance (PITI) for the mortgage,
homeowners' association dues, leasehold payments, and subordinate
financing payments.
Net Effective Income
Gross income less
federal income tax.
Negative amortization
A gradual increase in
mortgage debt that occurs when the monthly payment is not large
enough to cover the entire principal and interest due. The amount of
the shortfall is added to the remaining balance to create "negative"
amortization
Net Worth
The value of all
assets, including cash, less total liabilities.
No cash-out refinance
A refinance
transaction in which the new mortgage amount is limited to the sum
of the remaining balance of the existing first mortgage, closing
costs (including prepaid items), points, the amount required to
satisfy any mortgage liens that are more than one year old (if the
borrower chooses to satisfy them), and other funds for the
borrower's use (as long as the amount does not exceed 1 percent of
the principal amount of the new mortgage).
Non-liquid asset
An asset that cannot
easily be converted into cash.
Note
A legal document that
obligates a borrower to repay a mortgage loan at a stated interest
rate during a specified period of time.
Note rate
The interest rate
stated on a mortgage note.
Notice of Default
A formal written
notice to a borrower that a default has occurred and that legal
action may be taken.
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Original principal
balance
The total amount of
principal owed on a mortgage before any payments are made.
Origination Fee
A fee paid to a lender
for processing a loan Application.
OTC
(The Office of Thrift
Supervision). Charters federal thrifts, serves as the primary
federal examiner and regulator of federal and state-chartered
savings associations, and administers laws governing savings and
loan holding companies.
Owner financing
A property purchase
transaction in which the property seller provides all or part of the
financing.
Owner Occupied
"Owner Occupied" means
the property is the owner's primary residence.
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Payment Adjustment
Period
The length of time
(typically a year) between changes to the AML borrower's P&I
payment.
Payment Buy down
Payment buy downs
occur when a third party, typically a builder, pays part of the
initial P&I payments for a year or two, so that the borrower has
smaller payments and can qualify for the loan.
Payment Cap
A limit on the amount
the payment can be changed at the end of each Payment Adjustment
Period.
Payment Discount
In a payment discount,
the lender reduces the first year's interest rate to make the
mortgagor more attractive to borrowers.
Periodic payment cap
A limit on the amount
that payments can increase or decrease during any one-adjustment
period.
Periodic rate cap
A limit on the amount
that the interest rate can increase or decrease during any one
adjustment period, regardless of how high or low the index might be.
Personal property
Any property that is
not real property.
PITI
Principal, Interest,
Taxes and Insurance are components of a mortgage payment.
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
A one-time charge by
the lender to increase the yield of the loan; 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.
Prepayment
Payment of mortgage
loan, or part of it, before due date.
Pre-qualification
The process of
determining how much money a prospective homebuyer will be eligible
to borrow before application.
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Prime rate
The interest rates
that banks charge to their preferred customers.
Principal
The amount borrowed or
remaining unpaid, also, that part of the monthly payment that
reduces the outstanding balance of a mortgage.
Private Mortgage
Insurance
Insurance provided by
nongovernmental insurers that protect lenders against loss if a
borrower defaults.
Promissory note
A written promise to
repay a specified amount over a specified period of time.
Public auction
A meeting in an
announced public location to sell property to repay a mortgage that
is in default.
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.
Purchase Agreement
See Agreement of Sale.
Purchase money
transaction
The acquisition of
property through the payment of money or its equivalent.
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Qualifying Ratios
Guidelines applied by
lenders to determine how large a loan to grant a homebuyer.
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.)
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Radon
A radioactive gas
found in some homes that in sufficient concentrations could cause
health problems.
Rate Caps
(Also called "Interest
Rate Caps"). A limit on the amount of which the interest rate
charged to the borrower can be changed.
Rate lock
A commitment issued by
a lender to a borrower or other mortgage originator guaranteeing a
specified interest rate for a specified period of time.
Real Estate Broker
A middleman or agent
who buys and sells real estate for a company, firm, or individual on
a commission basis. The broker does not have title to the property,
but generally represents the owner.
Real Estate Owned
(REO). A term
frequently used by lending institution as applied to ownership of
real property acquired for investment or as a result of foreclosure.
RESPA
(Real Estate
Settlement Procedures Act). A Federal law that requires lenders to
provide home mortgage borrowers with information about known or
estimated settlement costs.
Real property
Land and
appurtenances, including anything of a permanent nature such as
structures, trees, minerals, and the interest, benefits, and
inherent rights thereof.
REALTOR
A real estate broker
or an associate who holds active membership in a local real estate
board that is affiliated with the National Association of Realtors.
Recission
The cancellation or
annulment of a transaction or contract by the operation of a law or
by mutual consent.
Recorder
The public official
who keeps records of transactions that affects real property in the
area.
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Recording
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. Refinancing
The process of the
same mortgagor paying off one loan with the proceeds from another
loan.
Rehabilitation
mortgage
A mortgage created to
cover the costs of repairing, improving, and sometimes acquiring an
existing property.
Remaining balance
The amount of
principal that has not yet been repaid.
Remaining term
The original
amortization term minus the number of payments that have been
applied.
Repayment plan
An arrangement made to
repay delinquent installments or advances. Lenders' formal repayment
plans are called "relief provisions."
Replacement reserve
fund
A fund set aside for
replacement of common property in a condominium, PUD, or cooperative
project -- particularly that which has a short life expectancy, such
as carpeting, furniture, etc.
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.)
Revolving liability
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 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.
RTC
(Resolution Trust
Corporation). Formed to resolve thrift failures over the next three
years and dispose of their assets and liabilities.
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Sales Agreement
See Agreement of sale.
Second Mortgage
A mortgage that has
rights that are subordinate to the rights of the first mortgage
holders.
Secondary Mortgage
Market
The buying and selling
of existing mortgages.
Seller-Provided Funds
(Also called "Seller
Contributions"). Seller-provided funds include all transaction cost
paid by the seller except the real estate agent's (or brokers) fee.
Servicer
The party who has
entered into an agreement with the insured to service a loan.
Settlement Costs
See Closing Costs.
Single Premium
A premium, which
provides coverage for more than a year. empty)
Special Assessments
A special tax imposed
on property, individual lots or all property in the immediate area,
for road construction, sidewalks, sewers, streetlights, 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
Lien.)
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.
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.
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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.
Tax Lien
A claim against real
estate for the amount of its unpaid taxes.
Teaser Rate
Similar to a Payment
Discount, but implies either an unusually large initial rate
discount or an attempt by the lender to lure an otherwise
unqualified borrower into the mortgage.
Tenancy by the
entirety
A type of joint
tenancy of property that provides right of survivorship and is
available only to a husband and wife. Contrast with tenancy in
common.
Tenancy in common
A type of joint
tenancy in a property without right of survivorship. Contrast with
tenancy by the entirety and with joint tenancy.
Tenant-stockholder
The obligee for a
cooperative share loan, who is both a stockholder in a cooperative
corporation and a tenant of the unit under a proprietary lease or
occupancy agreement.
Third-party
origination
A process by which a
lender uses another party to completely or partially originate,
process, underwrite, close, fund, or package the mortgages it plans
to deliver to the secondary mortgage market.
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 Company
A company that
specializes in examining and insuring titles to 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 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.
Total Debt Ratio
Monthly debt and
housing payments divided by gross monthly income. Also known as
Back-End Ratio.
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Total expense ratio
Total obligations as a
percentage of gross monthly income. The total expense ratio includes
monthly housing expenses plus other monthly debts.
Trade equity
Equity that results
from a property purchaser giving his or her existing property (or an
asset other than real estate) as trade as all or part of the down
payment for the property that is being purchased.
Transfer of ownership
Any means by which the
ownership of a property changes hands. Lenders consider all of the
following situations to be a transfer of ownership: the purchase of
a property "subject to" the mortgage, the assumption of the mortgage
debt by the property purchaser, and any exchange of possession of
the property under a land sales contract or any other land trust
device. In cases in which an inter vivos revocable trust is the
borrower, lenders also consider any transfer of a beneficial
interest in the trust to be a transfer of ownership.
Transfer tax
State or local tax
payable when title passes from one owner to another.
Treasury index
An index that is used
to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans.
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.
Truth-In-Lending
(TIL). A federal law
that requires lenders to fully disclose, in writing, the terms and
conditions of a mortgage, including the APR and other charges.
Two- to four-family
property
A property that
consists of a structure that provides living space (dwelling units)
for two to four families, although ownership of the structure is
evidenced by a single deed.
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Underwriting
The process of
evaluating a loan application to determine the risk involved for the
lender. Underwriting involves an analysis of the borrower's
creditworthiness and the quality of the property itself.
Unsecured-loan
A loan that is not
backed by collateral.
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Government Loans FHA /
VA
Government loans are
loans that are guaranteed or purchased by government organizations.
Two of the most popular Government Loans are the Federal Housing
Administration (FHA) and the Department of Veterans Affairs (VA).
Vested
Having the right to
use a portion of a fund such as an individual retirement fund.
Department of Veterans
Affairs (VA)
An agency of the
federal government that guarantees residential mortgages made to
eligible veterans of the military services. The guarantee protects
the lender against loss and thus encourages lenders to make
mortgages to veterans.
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Wraparound
mortgage
A mortgage that
includes the remaining balance on an existing first mortgage plus an
additional amount requested by the mortgagor. Full payments on both
mortgages are made to the wraparound mortgagee, who then forwards
the payments on the first mortgage to the first mortgagee.
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Zoning Ordinances
The acts of an
authorized local government establishing building codes, and setting
forth
Note. All Information is Subject to Errors & Omissions.
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