Housing Terms Glossary

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AGREEMENT OF SALE
A written contract signed by the seller and buyer stating the terms and conditions under which a property will be sold. Also known as the Sales Contract.

APPLICATION FEE
The charge collected by the lender at the time of the mortgage application. This fee often includes charges for property appraisals and credit report.

APPRAISAL
A professional, written estimate of the current market value of a property.

APPRECIATION
The increased value of a property.

ANNUAL PERCENTAGE RATE (APR)
Annual Percentage Rate is used to determine the full cost of a loan including interest and loan fees. This is the rate which is often used to compare lending programs.

ARREARS
Any debts, such as rent, that are overdue.

ASSESSED VALUE
The value of the property as assessed for property tax purposes.

ASSUMABLE MORTGAGE
An existing mortgage that can be taken over by the buyer when a property is sold; it may require waiver of an enforceable due-on-sale provision.

BALLOON PAYMENT
A short term fixed-rate loan with payments for a set number of years and one large final payment of the remainder of the principal.

BANKRUPTCY
When an individual who, through court action, is relieved from payment of all debts.

BREACH OF CONDITIONS
Failure to live up to the conditions of the lease or sales contract.

BUYDOWN
A sum of money paid to the lender at closing to reduce the borrower’s out of pocket monthly payment. A buy down can be temporary or permanent.

CANCELLATION CLAUSE
A clause in a contract that allows either party to terminate the contract under certain agreed conditions.

CAP
A limit placed on payments, interest rates and/or the balance of a loan. Caps can limit increases by either a dollar amount or a percentage.

CASH RESERVE
Lenders may require that a buyer have at least 2 months of mortgage payments available after closing.

CHAPTER 7
Legal declaration of debtors’ inability to discharge debts.

CHAPTER 13
Court-approved repayment plan for wage earners who have delinquent debts.

CLOSING
A meeting for the finalized sale of a property where documents are signed and monies exchanged.

CLOSING COSTS
Cost for expenses incurred during the transfer of the property that are paid by the buyer and seller. Closing costs are also known as settlement costs. The following items are examples of some costs: Attorney Fees, Points, Prepaid items, Title Insurance, and Transfer Taxes.
 
COMMITMENT
An agreement in writing between a lender and borrower to loan money at a future date subject to certain conditions.

CONDITIONAL SALES CONTRACT
A contract for the sale of a property in which transfer of title to the buyer is contingent on fulfillment of certain conditions/contingencies.

CONTRACT
An agreement between two parties for a legal consideration. Contracts must be in writing to be enforced.

CONVENTIONAL MORTGAGE
Any mortgage that is not insured or guaranteed by the Federal Government.

CONVEYANCE
The transfer of title real property from one party to another.

COSIGNER
A person willing to sign a lease or a contract and bear responsibility for the enforcement of all the provisions of the lease or contract.

CREDIT REPORT
An individual’s credit history which is prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

DEBT-TO-INCOME RATIO
Calculation of gross income minus debt load. Deductions include outstanding loans (i.e., car loans, personal loans, credit cards, etc.) and other recurring expenses.

DEED
A written document that shows ownership of the property.

DEED IN LIEU OF FORECLOSURE
An agreement to voluntarily transfer the property title to the loan servicer in exchange for cancellation of the remainder of the debt.
 
DEED OF TRUST
A type of security instrument conveying title in trust to a third party for a particular property in order to secure payment of a note.

DEFAULT
Failure to meet legal obligations in a contract, including failure to make payments on a loan. A mortgage is generally considered to be in default when a payment is 30 days past due.

DEMAND FEATURE
Discloses whether the loan’s remaining principal and interest amount is due and payable on demand.

DELINQUENCY
A loan payment that is a least one month overdue, but which has not yet been declared by the lender to be in default.

DEPOSIT
A cash deposit made by a potential buyer to show that the offer is serious.

DEPRECIATION
A decline in the value of property.

DOWN PAYMENT
Down payment is the difference between the sales price and the loan amount. Lenders set specific requirements for this amount, and the amount may differ based on the type of financing the borrower is obtaining.

EARNEST MONEY
A deposit paid by the potential home buyer, when an offer is made to purchase a property, to show that he or she is serious about buying the house.

EQUITY
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of a property and the amount still owed on the mortgage.

EQUITY LOAN
A loan based on the equity value of a home.

ESCROW ACCOUNT
Each month your mortgage payment may include 1/12th of the cost for the annual property taxes, homeowner’s insurance and mortgage insurance. The lender places these funds in a reserve account, known as an escrow. When the taxes and insurance become due, the lender pays the bill out of the reserve account.

EVICTION
The legal process used to remove a person from a property for a breach of lease.

FAIR CREDIT REPORTING ACT
A consumer protection law that regulates the disclosure of consumer credit reports and procedures regarding repairing a credit record.

FANNIE MAE
Federal National Mortgage Association.

FEE SIMPLE
The full ownership rights in a property without any reservations or restrictions.

FHA
Acronym for the Federal Housing Administration, which provides mortgage insurance and sets construction and underwriting standards. FHA does not lend money.

FINANCE CHARGE
This figure includes the interest paid over the term of the loan, points and origination fee.

FIXED RATE MORTGAGE
A mortgage in which the interest rate does not change.

FOREBEARANCE
The mortgage payments are reduced or suspended for a period of time. At the end of the time, regular payments are resumed as well as a lump sum payment or additional partial payments for a number of months to bring the loan current.

FORECLOSURE
The legal process by which a mortgage property may be sold when a mortgage is in default.

FREDDIE MAC
Federal Home Loan Mortgage Corporation.

GROSS MONTHLY INCOME
Total amount borrower earns each month before taxes or other expenses are deducted.

HAZARD INSURANCE
Insurance protecting the insured from damage or loss on property due to hazards such as fire, wind, vandalism, water.

HOME EQUITY LOAN
A loan made to a borrower based on the equity value of the home.

HOME WARRANTY
A type of insurance that covers repairs to specific parts of a house for a specific period of time.

HOMEOWNER’S INSURANCE
A policy insuring against “multiple perils” made available to homeowners.

HUD
Acronym for the U.S. Department of Housing and Urban Development, which administers many housing programs from rented subsidy assistance to homeownership. Also ensures fair housing in real estate transactions.

HUD-1 SETTLEMENT STATEMENT
A form that itemizes the closing costs associated with purchasing a home.

INTEREST
The fee charged for borrowing money.

JOINT TENANCY
A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

LANDLORD
An owner or agent for owner who rents property to a tenant with an oral or written contract.

LATE CHARGE
A penalty charge assessed on rent or a mortgage when payment is made after the due date.

LEASE
A contract that gives possession of property to another for a consideration (usually rent) for a specific period of time.

LIEN
A legal claim to a property, usually for a debt, that must be paid when the property is sold.

LOAN ASSUMPTION
The process whereby a buyer assumes responsibility for the existing loan on the property.

LOAN ORIGINATION FEE
A charge by the lender to cover the time and processing fees.

LOAN MODIFICATION
A revised mortgage note to permanently change one or more of the loan terms to make the payments more manageable.

LOCK-IN
A written agreement guaranteeing the buyer a specific interest rate, provided the loan is closed within a set period of time.

MODIFICATION
The act of changing any of the terms of a mortgage so that the borrower of a defaulted mortgage can avoid foreclosure.

MORTGAGE
A document in which the borrower gives the lender a lien on the property as security for the payment of an obligation.

MORTGAGE BROKER
A fee-based intermediary between the lender and borrower.

MORTGAGE INSURANCE
An insurance policy that would reimburse the lender for part of their losses in the event that a borrower defaults on their mortgage loan. This insurance is obtained by the mortgage lender and are paid monthly by the borrower from the escrow account. The mortgage insurance is usually required when the borrower’s down payment is less than 20%.
• PMI (Private Mortgage Insurance)
A private insurance company insures the mortgage loan.
• MIP (Mortgage Insurance Premium)
A government agency insures the mortgage loan such as FHA.

NEGATIVE AMORTIZATION
Payment terms under which the borrower’s monthly payments do not cover the interest due, thereby increase the loan balance. 

ORIGINATION FEE
A fee paid to the lender for processing the loan application, stated as a percentage of the mortgage amount.

PREPAYMENT
Defines whether a fee will be charged to the borrower for paying off the loan early.

PITI
An acronym for Principal, Interest, Taxes, Insurance – all the components of a monthly mortgage payment.

PREFORECLOSURE SALE
A procedure in which the borrower is allowed to sell his or her property for an amount less than what is owed in order to avoid foreclosure of a defaulted mortgage. Also known as Short Sale.

PREQUALIFICATION
Determining the amount a buyer is eligible to borrow before a loan application is made.

PRINCIPAL AND INTEREST
Principal is the total amount borrowed from the mortgage lender. Interest is a percentage charged over the life of the loan for the use of the money. Both principal and interest is paid in monthly installments throughout the life of the loan.

POINTS
A dollar amount paid to a lender as a fee for making a loan. A point is equal to one percent of the loan amount, paid one time and usually at closing. Points may also be referred to as an origination fee, discount points, or a combination of the two.

RADON
A radioactive gas found in some homes that may cause health problems.

RATIOS
Calculations used to determine if a borrower is qualified to obtain a mortgage for a specific amount. The first ratio is the housing expense ratio and is determined by taking the borrower’s projected total monthly housing expense and dividing that amount into the borrower’s gross monthly income. The second ratio is called the total debt ratio and it is determined by the borrower’s projected monthly housing expense added to any other monthly debts (installments and revolving) divided by the borrower’s gross monthly income. 

REALTOR
An agent, acting for an owner, who is licensed to sell or rent property.

REFINANCING
Paying off one loan with a new loan using the property as security.

REINSTATEMENT
The borrower agrees to pay off the entire past due amount plus any late fees or penalties. This option may be appropriate if the problem paying the mortgage is temporary and/or the past due balance owed is small.

RENT WITH OPTION TO BUY
An agreement between both parties that allows part of a rent payment to be held in escrow towards the eventual purchase of the home after a contractual time frame.

REPAYMENT PLAN
A fixed amount of time is given to repay the past due amount of the mortgage by adding a portion of the regular payment. This option may be appropriate if the borrower has missed only a small number of payments.

REVERSE MORTGAGE
Mortgage for senior homeowners who can borrow against the equity in their home with repayment occurring after the home is sold or the owner dies.

RURAL
Generally areas of open country with populations of 10,000 persons or less.

SALES CONTRACT
A written agreement between a buyer and seller stating the terms and conditions of a sale or exchange of property.

SECOND MORTGAGE
A mortgage that has a lien position subordinate to the first mortgage. 

SETTLEMENT SHEET
A computation of closing costs that determines the seller’s net proceeds and the buyer’s payment.

SHORT SALE
An agreement with the lender to allow the borrower to sell the home for less than the amount owed.

SPECIAL FOREBEARANCE
A relief provision that permits a period of reduced or suspended payments, followed by another period of larger-than-normal payments, to enable the borrower to cure a delinquency.

TENANCY AT WILL
A rental agreement that allows either the landlord or the tenant to terminate the lease at any time.

TENANT
A person who leases property from a landlord.

TITLE
A legal document showing ownership of a property. Also, the rights of ownership and possession of that property.

TITLE INSURANCE
Insurance to protect the lender (lender’s policy) and/or the buyer’s (owner’s policy) against loss arising from defects in the title or disputes over ownership of the property.
 
TITLE SEARCH
A check to ensure that the seller is the legal owner of a property and no liens or claims are outstanding.

TRANSFER TAX
State or local tax payable when title transfers from one owner to another.

TRUTH IN LENDING ACT
Federal law requires lenders to fully disclose in writing all terms and conditions of a mortgage, including all charges.

UNDERWRITING
The process of evaluating a loan application to determine that the applicant and the property meet the guidelines established by the lender. The applicant’s income, ratios, employment history, credit and savings history and the property are all factors to determine whether an application is approved.

VA LOAN
A loan guaranteed by the U.S. Department of Veterans Affairs. 

VARIABLE RATE FEATURE
The loan’s interest rate will adjust and the lender should provide the borrower with a variable rate disclosure explaining the terms of the adjusting rate.

WORKOUT PLAN
An alternative to foreclosure that a lender may offer to the borrower of a defaulted mortgage, such as assumptions, pre-foreclosure sales, modifications, and deeds in lieu of foreclosure