Mortgage Terms - Details

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A Fannie Mae loan application form designed by Fannie Mae and Freddie Mac that is used by lenders financial information from borrowers who apply for a mortgage loan secured by a one-to-four unit residential real estate. Also known as: Uniform Residential Loan Application (URLA). It has been widely adopted by mortgage lenders as a standard Also referring to it as the Freddie Mac Form 65.

1003

A 1031 exchange allows resident and non-resident United States to defer capital gains and recaptured depreciation taxes When exchanging real or personal property held for productive use in a trade, business, or for investment for like-kind real or personal property held for productive use in a trade, business, or for investment. The tax otherwise paid in a traditional sale is deferred indefinitely until the replacement property is sold or another 1031 exchange is initiated.

1031 Exchange

An IRS Form used to retrieve past tax returns, W-2, and 1099 transcripts that are on file with the IRS. It is used to validate income documentation for underwriting and quality control purposes.

4506-T

A concise statement, usually prepared for a mortgagee or purchaser of real property, summarizing the history of a piece of loan, including all conveyances, interests, liens, and encumbrances that affect title to the property. A good and merchantable abstract of title shows clear and marketable title, rather than showing only the history of the property

Abstract of title

A loan-agreement provision that requires the debtor to pay off the balance sooner than the due date if some specified event occurs, such as failure to pay an installment or to maintain insurance.

Acceleration Clause

Interest that is earned but not yet paid. For example: interest that accrues on real estate will be paid when the property is sold if the rental income does not cover the mortgage payments.

Accrued Interest

The original cost of an asset.

Acquisition Costs

A mortgage in which the lender can periodically adjust the mortgage interest rate in accordance with fluctuations in an external market index. Also known as: Variable Rate Mortgage (VRM).

Adjustable Rate Mortgage (ARM)

Basis increased by capital improvements and decreased by depreciation deductions.

Adjusted Basis

On an Adjustable Rate Mortgage (ARM), the time between changes in the interest rate and/or monthly payment. Typically one, three, or five years depending on the index.

Adjustment Interval

Time between the adjustment dates for an Adjustable Rate Mortgage (ARM).

Adjustment Period

An arrangement in which a person refers a business to a real estate service involving a federally related mortgage loan that has either an affiliate relationship with or a beneficial ownership interest. An Affiliated Business Arrangement (ABA) is not a violation of Section 8 of the Real Estate Settlement Procedures Act (RESPA).

Affiliated Business Arrangement (ABA)

An agreement that obligates someone to sell and may include a corresponding obligation for someone else to buy.

Agreement of Sale

A method of documenting a loan file by using information such as pay stubs, W-2 forms, and bank stubs instead of waiting on verifications sent to third parties for confirmation of statements made on the application.

Alternative Documentation

The act or result of gradually extinguishing a debt, such as a mortgage, usually by contributing payments or principal each time a periodic interest payment is due.

Amortization

The length of time it will take to amortize the mortgage loan expressed in months. For example, a 30-year mortgage is a 360-month amortization term.

Amortization Term

The actual cost of borrowing money, expressed in the form of an annualized interest rate.

Annual Percentage Rate (APR)

A fixed sum of money payable periodically, usually monthly or annually. These payments terminate upon the death of the designated beneficiary. Also, a right, often acquired under a life-insurance contract, to receive fixed payments periodically for a specified duration.

Annuity

The determination of what constitutes a fair price for something or how its condition can be fairly stated at a point in time.

Appraisal

A fee charged by a licensed certified appraiser to determine the fair market value.

Appraisal Fee

An impartial person who estimates the value of something such as real estate.

Appraiser

An increase in an asset’s value (often because of inflation).

Appreciation

A dispute-resolution process in which the disputing parties choose one or more neutral third parties to make a final and binding decision resolving the dispute. A third party may be chosen directly by mutual agreement, or indirectly by agreeing to have an arbitration organization select the third party.

Arbitration

Describes the features of the Adjustable Rate Mortgage (ARM) loan which must be presented to the consumer within 3 days of application.

Adjustable Rate Mortgage Disclosure

The consumer Handbook to Adjustable-Rate Mortgages must be presented within 3 days of application.

Adjustable Rate Mortgage Handbook (CHARM)

A soft gray mineral that was used as a building material in the past. It is no longer in use, but can still be found in some older homes. When asbestos dust is inhaled it can cause serious diseases of the lungs.

Asbestos

The value of an asset as determined by an appraiser for tax purposes.

Assessed Value

Determination of the rate or amount of something, such as a tax or damages.

Assessment

An official who evaluates or makes assessments, especially for purposes of taxation.

Assessor

An owned item that has value.

Asset

The transfer of rights or property.

Assignment

An assignment in which a mortgage lender or borrower transfers the mortgage to a third party.

Assignment of Mortgage

The acquisition of real property coupled with the assumption of personal liability for debt secured by that property.

Assumption (of Mortgage or Trust Deed)

The fee paid to a lender when an assumption takes place. It is usually paid by the purchaser.

Assumption Fee

A statement of financial position as of the statement’s date, disclosing the value of assets, liabilities, and equity.

Balance Sheet

A mortgage requiring periodic payments for a specified time and a lump-sum payment of the outstanding balance at maturity.

Balloon Mortgage

A final loan payment that is usually much larger than the preceding regular payments. This payment discharges the principal balance of the loan.

Balloon Payment

Basis points are used in computing and calculating the interest rate in real estate transaction. One basis point is equal to 1/100th of 1%, or 0.01%, and is used to denote the percentage change in a financial instrument.

Basis Point

A statutory procedure by which a usually insolvent debtor obtains financial relief and undergoes a judicially supervised reorganization or liquidation of the debtor’s assets for the benefit of creditors.

Bankruptcy

A mortgage that covers an aggregation of property, or that secures indebtedness previously existing in various forms. For example: a mortgage covering two or more properties that are pledged to support a debt.

Blanket Mortgage

Made in good faith without fraud or deceit.

Bona fide

Someone who mortgages property.

Borrower (Mortgagor)

A short-term loan that is used to cover costs until more permanent financing is arranged or to cover a portion of costs that are expected to be covered by an imminent sale.

Bridge Loan

A law or regulation setting forth standards for the construction, maintenance, occupancy, use, or appearance of buildings and dwelling units.

Building Code

Money paid by the buyer of a house to reduce the mortgage-interest payments.

Buy-Down

The account in which funds are held so they can be applied as each payment comes due for an interest rate buy-down plan.

Buy-Down Account

A real estate broker who acts as the agent of a purchaser of property. Statutes in many states permit prospective buyers to retain a licensed real estate agent. In some states, a buyer’s broker is treated as the subagent of the broker with whom the owner lists property for sale and not the agent of the buyer.

Buyer’s Broker/Agent

A market in which supply significantly exceeds demand, resulting in lower prices.

Buyer’s Market

An option to buy something at a fixed rate price even if the market rises; the right to require another to sell.

Call Option

The power to create a legal agreement under the same circumstances in which a normal person would. It is with the satisfaction of a legal qualification, such as legal age or soundness of mind, that determines one’s ability to sue or be sued, enter a binding contract, etc. A party wishing to raise the issue of capacity must do so by specific negative pleading.

Capacity

The movement of cash through a business as a measure of profitability or liquidity.

Cash Flow

A check drawn by a bank payable to another person. This is evidence that the payee has authorization from the bank for the amount of money represented by the check.

Cashier’s Check

A banker’s certificate acknowledging the receipt of money and promising to repay the depositor.

Certificate of Deposit

A certificate issued by the Department of Veterans Affairs (VA) certifying a veteran’s eligibility for a VA loan.

Certificate of Eligibility

A document indicating that a building complies with zoning and building ordinances and is ready to be occupied. A certificate of occupancy is often required before title can be transferred and the building occupied

Certificate of Occupancy

An appraisal issued by the Department of Veterans Affairs (VA) showing the property’s fair market value

Certificate of Reasonable Value (CRV)

A document indicating the ownership of real or personal property. This document also identifies any liens or other encumbrances.

Certificate of Title

Certificate given to veterans or reservists who have served 90 days of continuous active duty (including training time), which enables veterans to obtain lower down payments on certain Fair Housing Act (FHA) loans.

Certificate of Veteran Status

The ownership history of a piece of land, from its first owner to the present one. For the holder to have a good title, every prior negotiation must have been proper. If the necessary indorsement is missing or forged, the chain of title is broken and no later transferee can become a holder.

Chain of Title

A modification of the original construction plans ordered by the property owner or general contractor.

Change Orders

A title free from any encumbrances, burdens, or other limitations. I.e. a good and marketable title.

Clear Title

Affirmed that all citizens are equally protected by the law. Enacted April 9, 1866.

Civil Rights Act (1866)

Change in the frequency of payment or interest rate of Adjustable Rate Mortgage (ARM).

Change Frequency

The final transaction between the buyer and seller whereby the conveyance of documents is concluded and the money and property transferred.

Closing/Settlement

An agent who represents the buyer in the negotiation and closing of real property transactions by handling financial calculations and transfer of documents.

Closing Agent

The expenses that must be paid, usually in a lump sum at closing, apart from the purchase price and interest. These may include taxes, title insurance, and attorney’s fees.

Closing Costs

The date scheduled for the conclusion of the real estate transaction

Closing Date

A written breakdown of the costs involved in the real estate transaction, usually prepared by a lender or an escrow agent.

Closing Statement

A defect or potential defect in the owner’s title to a piece of land arising from some claim or encumbrance, such as a lien, an easement, or a court order

Cloud on Title

Any borrower in addition to the first borrower whose name appears on the application. The co-borrower’s income, assets, liabilities, and credit history are considered in determining creditworthiness

Co-Borrower

Property that is pledged as security against a debt; the property subject to a security interest or agricultural lien.

Collateral

Ratio of the total mortgage liens against the property to the lesser of either the appraised value or the sales price.

Combined Loan-to-Value (CLTV)

The fee paid to an agent for a transaction usually as a percentage of the money received from the transaction.

Commission

A binding offer by a lender to make a loan under certain terms or conditions to a borrower. Includes the amount of the mortgage, the interest rate, and repayment terms.

Commitment

The realty that all tenants may use, though the landlord retains control over and responsibility for it. An area owned and used in common by the residents of a condominium, subdivision, or planned-unit development.

Common Areas

Intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low to moderate income neighborhoods, consistent with safe and sound banking operations.

Community Reinvestment Act (1977)

An abbreviation for “comparable properties” used in the appraisal process. Comparables are properties similar to the property under consideration. They have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property

Comparables

The voluntary yielding to a demand for the sake of a settlement. In a real estate transaction, something given up or agreed to in sale negotiations. For example, the sellers may agree to help pay for closing costs.

Concession

A stipulation or prerequisite in a sales contract. If a court construes a contractual term to be a condition, then its breach will entitle the party to whom it is made to be discharged from all liabilities under the contract.

Condition

A single real estate unit in a multi-unit development in which a person has both separate ownership of a unit and a common interest, along with the development’s other owners, in the common areas.

Condominium

A mortgage loan under the maximum amount of loans that Fannie Mae and Freddie Mac are legally allowed to buy.

Conforming Loan

A mortgage used to finance a construction project.

Construction Mortgage

An independent federal agency that regulates consumer financial products and services. The Bureau protects consumers by restricting unfair and deceptive business practices, by promoting financial education, taking consumer complaints, and enforcing federal consumer-financial-protection laws. It was established by the Dodd-Frank Act in 2010 and began operating in 2011.

Consumer Financial Protection Bureau (CFPB)

An independent firm that collects, compiles and reports the credit activities of individuals which is made available, for a fee, to lenders or credit issuing entities investigating the creditworthiness of those applying for credit. Consumers may also access reports from each of the three major reporting agencies for free as required by law

Consumer Reporting Agency (Credit Bureau)

A clause within the sales contract stating that a certain condition must be met before a contract is legally binding, and the sale can close. Real estate contracts often have a specific date by which the contingency must be met. E.g. The buyer will often include an inspection contingency, requiring the home to be inspected for physical damages or problems before the sales contract is binding. The buyer will have the right to rescind if the contingency is not met.

Contingency Clause

A mortgage, not backed by government insurance, which the borrower transfers a lien or title to the lending bank or other financial institution. These mortgages, which feature a fixed periodic payment and interest throughout the mortgage term, are typically used for home financing.

Conventional Mortgage

A provision in an Adjustable Rate Mortgage (ARM) which allows the loan to be converted from an ARM to a fixed-rate mortgage at specified times during the term. Usually allowed at the end of the first adjustment period. Also known as a Convertible ARM.

Conversion Clause/Option

The voluntary transfer of property

Conveyance

A project in which a corporation holds the title to a residential property and sells shares to individual buyers, who then receive a proprietary lease as their title.

Cooperative (Co-op) Project

An offeree’s new offer that varies the terms of the original offer and that ordinarily rejects and terminates the original offer. A late or defective acceptance is considered a counteroffer.

Counteroffer

A formal agreement or promise to perform, or not perform, a particular act.

Covenants

One’s ability to borrow money.

Credit

Information in the files of a credit bureau regarding an individual’s debts and repayments (or non-repayments).

Credit History

Life insurance on a borrower, usually in a consumer installment loan, in which the amount due is paid if the borrower dies.

Credit Life Insurance

A credit bureau’s report on a person’s financial status, usually including the approximate amounts and locations of a person’s bank accounts, charge accounts, loans, other debts, bill-paying habits, defaults, bankruptcies, foreclosures, marital status, occupation, income, and lawsuits.

Credit Report

Statistically derived numeric expression of a person’s creditworthiness that is used by lenders to assess the likelihood that the individual will repay their debts.

Credit Score

One who gives credit for money or goods.

Creditor

Financially sound enough that a lender will extend credit in the belief that default is unlikely

Creditworthy

Liability on a claim.

Debt

The percentage of gross monthly income that goes toward paying for monthly housing expenses, alimony, child support, car payments, and other installment debts, and payments on revolving or openended accounts such as credit cards.

Debt-to-Income Ratio

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