Brak Realty - Glossary of Terms

A

ACCELERATION CLAUSE - Allows the lender to demand immediate payment of the balance of the loan should you default on your payments.

ADJUSTABLE RATE MORTGAGE (ARM) - A mortgage in which the interest rate is adjusted periodically based on a designated financial index. Also known as variable rate mortgage.

ADJUSTMENT DATE - The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

ADJUSTMENT PERIOD - The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

ADJUSTMENT INTERVAL - On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment.

AMORTIZATION - Equal periodic payments calculated to pay off the loan at the end of a fixed period, typically 15 or 30 years.

AMORTIZATION TERM - The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

ANNUAL PERCENTAGE RATE (APR) - An interest rate reflecting the cost of a loan as a yearly rate. This rate is likely to be higher than the stated note rate on the mortgage, as it takes into account points and other credit costs. The APR allows borrowers to compare different types of mortgages based on the annual cost for each loan.

APPLICATION - A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security.

APPRAISAL - Estimate of the value of property by a qualified professional called an "appraiser."

APPRAISER - A person qualified by education, training, and experience to estimate the value of real property and personal property.

APPRECIATION - An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

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.

ASSUMPTION or Assumable Mortgage - Agreement between buyer and lender where the buyer takes over the payments on an existing mortgage.

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.

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		Real Estate and Financial Glossary A B Ca Co D E F G H I J K L M N O P Q R S T U V W X Y Z

A

ACCELERATION CLAUSE - Allows the lender to demand immediate payment of the balance of the loan should you default on your payments.

ADJUSTABLE RATE MORTGAGE (ARM) - A mortgage in which the interest rate is adjusted periodically based on a designated financial index. Also known as variable rate mortgage.

ADJUSTMENT DATE - The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

ADJUSTMENT PERIOD - The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

ADJUSTMENT INTERVAL - On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment.

AMORTIZATION - Equal periodic payments calculated to pay off the loan at the end of a fixed period, typically 15 or 30 years.

AMORTIZATION TERM - The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

ANNUAL PERCENTAGE RATE (APR) - An interest rate reflecting the cost of a loan as a yearly rate. This rate is likely to be higher than the stated note rate on the mortgage, as it takes into account points and other credit costs. The APR allows borrowers to compare different types of mortgages based on the annual cost for each loan.

APPLICATION - A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security.

APPRAISAL - Estimate of the value of property by a qualified professional called an "appraiser."

APPRAISER - A person qualified by education, training, and experience to estimate the value of real property and personal property.

APPRECIATION - An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

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.

ASSUMPTION or Assumable Mortgage - Agreement between buyer and lender where the buyer takes over the payments on an existing mortgage.

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.

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B

BALANCE SHEET - A financial statement that shows assets, liabilities, and net worth as of a specific date.

BALLOON MORTGAGE - Usually a short-term loan involving small payments for a set period of time and one large payment for the remaining principal balance at a specified time.

BALLOON PAYMENT
The final lump sum payment that is made at the maturity date of a balloon mortgage.

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.

BASIS POINT - A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.

BINDER - A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

BIWEEKLY PAYMENT MORTGAGE - A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.

BLANKET MORTGAGE - The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

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.

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. Also known as "swing loan."

BROKER - An individual in the business of assisting, arranging, funding or negotiating loans for a client, but who does not loan the money himself. Brokers either charge the borrower a fee or receive a commission from the lender for their services.

BUY-DOWN - When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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C

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.

CAPS (INTEREST) - Consumer safeguards that limit the amount that the interest rate on an ARM loan may change per year and/or life of the loan.

CAPS (PAYMENT) - Consumer safeguards which
limit the amount monthly payments on an adjustable rate mortgage may change.

CAPITAL IMPROVEMENT - Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

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. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

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.

CERTIFICATE OF TITLE - A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

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).

CLLEAR TITLE - A title that is free of liens or legal questions as to ownership of the property.

CLOSING - A meeting between the buyer, seller and lender escrow officer where the property and funds legally change hands. The mortgage documents are signed and closing costs paid. Also called "settlement".

CLOSING COSTS - Usually include an origination fee, appraisal fee, title search and insurance, taxes, deed recording fee, credit report charge and other costs assessed at settlement.

CLOSING STATEMENT - Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.

CLOUD ON TITLE - Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

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C

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.

COMBINATION LOAN - With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans--known as 80/10/10 loans or 80/20's.

COMBINED LOAN-TO-VALUE (CLTV) - The relationship between the unpaid principal balances of all the mortgages on a property (first and second usually) and the property's appraised value (or sales price, if it is lower.)

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. See endorser.

COMMISSION - The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

COMMITMENT - An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

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.

COMMUNITY HOME IMPROVEMENT MORTGAGE LOAN - An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

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 - An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like 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.

CONDOMINIUM - A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

CONDOMINIUM CONVERSION - Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

CONFORMING LOAN - The current conforming loan limit is $240,000 and below. Conforming loan limits change annually.

CONSTRUCTION LOAN - Short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

CONTINGENCY - A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

CONVENTIONAL LOAN - A loan not insured by FHA, VA or Farmers Home Administration.

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 timeframes after loan origination.

CONVERTIBLE ARM - An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

COOPREATIVE (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.

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.

CREDIT REPORT - Report listing borrowers' consumer credit use, including past and current debts, payment ratings and terms.

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D

DEED - The legal document conveying title to a property.

DEED-IN-LIEU - A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

DEED OF TRUST - The document used in some states instead of a mortgage; title is conveyed to a trustee.

DEFAULT - Failure to make the required payments on a loan. Often results in foreclosure.

DEFERRED INTEREST - See NEGATIVE AMORTIZATION.

DELINQUENCY - Failure to make loan payments on time. This could lead to default or foreclosure.

DEPARTMENT OF VETERANS AFFAIRS - Independent agency of the federal government which guarantees long-term, low or no-down payment loans to eligible veterans.

DEPRECIATION - A decline in the value of property; the opposite of appreciation.

DISCOUNT POINTS - See POINTS.

DOWN PAYMENT - Money paid to make up the difference between the purchase price and loan amount. Down payments usually are 10 to 20 % of the sales price on conventional loans.

DUE ON SALE CLAUSE - A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

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E

EARNEST MONEY - Money given by a buyer as part of the purchase price to bind a transaction or assure payment. Also called DEPOSIT.

EASEMENT - A right of way giving persons other than the owner access to or over a property.

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.

ENCUMBRANCE - Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

EQUAL CREDIT OPPORTUNITY ACT ( ECOA ) - Federal law requiring 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 market value and current loan, also known as owner's interest.

ESCROW - Neutral third party that carries out the instructions of both the borrower and lender to handle settlement or "closing." Escrow may also refer to an account held by the lender into which the borrower pays for tax or insurance payments.

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. Known as "impounds" or "reserves" in some states.

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.

EXAMINATION OF TITLE - The report on the title of a property from the public records or an abstract of the title.

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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.

FANNIE MAE - A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

FANNIE MAE'S COMMUNITY HOME BUYER'S PROGRAM - An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

FARMERS HOME ADMINISTRATION - Provides loans to farmers and other qualified borrowers unable to obtain loans elsewhere.

FEDERAL HOME LOAN MORTGAGE CORPORATION - Also called "Freddie Mac," a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

FEDERAL HOUSING ADMINISTRATION - Division of Department of Housing and Urban Development. Insures residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - Also known as "Fannie Mae." A corporation created by Congress that purchases and sells conventional, FHA and VA residential loans. Provides funds for 1 in 7 loans, making mortgage money more available and affordable.

FEE SIMPLE - The greatest possible interest a person can have in real estate.

FHA LOAN - Loan insured by the Federal Housing Administration open to qualified home purchasers. While limited in size ($124,875), they are generous enough to handle moderate-priced homes almost anywhere in the country.

FHA MORTGAGE INSURANCE - A fee (up to 3.8 % of loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA.

FINDER'S FEE - A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

FIRST ADJUSTMENT - When you can expect the first rate adjustment in your ARM loan.

FIRST MORTGAGE - A mortgage that is the primary lien against a property.

FIXED RATE MORTGAGE - Loan in which the interest rate is constant for the term of the loan.

FLOOD INSURANCE - Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

FORECLOSURE - A legal procedure in which property securing debt is sold by the lender to pay the defaulting borrower's debt.

FREDDIE MAC - See Federal Home Loan Mortgage Corporation.

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.

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G

GOOD FAITH ESTIMATE - An estimate of charges which a borrower is likely to incur in connection with a settlement.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - Also known as "Ginnie Mae," provides sources of funds for FHA and VA residential mortgages.

GRADUATED PAYMENT MORTGAGE (GPM) - Flexible-payment loan payments increase for a specified period of time and then level off. This type of loan has negative amortizationbuilt into it.

GROSS MONTHLY INCOME - The total amount the borrower(s) earns each month, before any expenses are deducted.

GUARANTEE - Promise to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform to a contract.

H

HAZARD INSURANCE - Insurance which protects the borrower and home from specified losses, such as fire, windstorm, etc.

HOME EQUITY LINE OF CREDIT - A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.

HOME EQUITY LOAN - a loan secured by a second deed of trust on a house, typically used as a home improvement loan.

HOUSING EXPENSES-TO-INCOME RATIO - The ratio, expressed as a percentage, obtained by dividing borrower's housing expenses by his/her gross monthly income. See debt-to-income ratio.

HUD - The U.S. Department of Housing and Urban Development.

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I

IMPOUND - Portion of the borrower's monthly payment collected by the lender to pay taxes, hazard insurance, mortgage insurance, and other items as they become due. Also known as reserves.

INDEX - The rate against which lenders measure the difference between the current rate on adjustable rate loans and that earned by other investments, (U.S. Treasury security yields, monthly average interest rate on loans closed by savings and loans, and monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate up or down.

INVESTOR - Money source for a lender.

J

JUMBO LOAN - Loan which is larger than the limits ($203,150) set by FNMA and FHLMC. Because jumbo loans cannot be funded by these agencies, they usually carry a higher interest rate.

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L

LIEN - A claim upon a piece of property for the payment of satisfaction of a debt or obligation.

LENDER - The bank, mortgage company, or mortgage broker offering the loan.

LIFETIME CAP - A provision of an ARM that limits the highest rate that can occur over the life of the loan.

LOAN-TO-VALUE RATIO - The relationship between the amount of the loan and the appraised value of the property expressed as a percentage.

LOCK PERIOD - The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.

LOCK-IN - A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

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M

MARGIN - Rate expressed as a percentage that a lender adds to the index on an adjustable rate loan to establish the adjusted interest rate.

MARKET VALUE - Price that a buyer would pay and a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

MORTGAGE - A legal document that pledges a property to the lender as security for payment of a debt

MORTGAGE INSURANCE - Paid to insure the mortgage when the down payment is less than 20 %. See Private Mortgage Insurance.

MORTGAGEE - The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

MORTGAGOR - The borrower or homeowner.

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N

NEGATIVE AMORTIZATION - Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan.

NET EFFECTIVE INCOME - The borrower's gross income minus federal income tax.

NON-ASSUMPTION CLAUSE - Statement in a loan contract forbidding the assumption of the loan without the prior approval of the lender.

NON-CONFORMING LOAN - Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $240,000 and above.

NOTE - A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.

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O

ORIGINATION FEE - Fee charged by lender to prepare loan documents, credit checks, etc.; usually computed as a percentage of face value of the loan.

OWNER FINANCING - A property purchase transaction in which the property seller provides all or part of the financing.

P

PERIODIC CAP - The maximum rate increase for a specific period for a specific loan (ARM) only.

PITI - Principal, interest, taxes, and insurance. Also called monthly housing expense.

PLANNED UNIT DEVELOPMENTS (PUD) - A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

POINTS (LOAN DISCOUNT POINTS) - Prepaid interest assessed at closing by the lender. Each point is equal to 1 % of the loan amount.

POWER OF ATTORNEY - A legal document authorizing one person to act on behalf of another.

PREPAIDS - Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

PREPAYMENT PENALTY - Fee charged for early repayment of some types of loans. Usually 6 months interest on 80% of current balance.

PRINCIPAL - The balance, not including interest, left on a loan.

PRIVATE MORTGAGE INSURANCE (PMI) - For loans over 80% loan-to-value. Lenders will loan up to 95% in some cases. With the higher LTV loans, borrowers are required to carry private mortgage insurance, which requires an initial premium and may require an additional monthly fee depending on your loan's structure.

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Q

QUALIFYING RATIOS - The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

R

RATE - The annual rate of interest on a loan, expressed as a percentage of 100.

RATE CAP - A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

RATE LOCK-IN - A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

REALTOR - Real estate broker or agent belonging to the National Association of Realtors.

REBATE - Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points" (see above).

RECISION -Law that gives the borrower 3 days after signing to cancel a contract in some cases, if the transaction uses home equity as security.

RECORDING FEES - Paid to the county for recording a home sale, thereby making it part of the public records.

REFINANCING - The process of paying off one loan with the proceeds from a new loan using the same property as security.

RENEGOTIABLE RATE MORTGAGE (RRM) - A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

RESIDENTIAL MORTGAGE CREDIT REPORT (RMCR) - A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.

RESPA Real Estate Settlement Procedures Act - Federal law allowing consumers to receive and review information on known or estimated settlement costs after application and again at settlement. Requires lenders to furnish information after application only.

REVERSE ANNUITY MORTGAGE (RAM) - A Mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

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S

SELLER CARRY BACK - An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

SERVICING - All steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, and property inspections.

SETTLEMENT/SETTLEMENT COSTS - See closing/closing costs.

SHARED APPRECIATION MORTGAGE (SAM) - Borrower receives a below-market interest rate and the lender (or another investor) receives a portion of the future appreciation of the property.

STATED/DOCUMENTED INCOME - Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.

SURVEY - Measurement of land, prepared by a registered land surveyor, showing location of the land with reference to known points, dimensions, and the location and dimensions of any building.

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T

TENANTS-IN-COMMON - An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

TERM - The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years.

TITLE - A document that gives evidence of an individual's ownership of property.

TITLE INSURANCE - A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search.

TITLE SEARCH - An examination of public records to determine the legal ownership of property. Usually is performed by a title company.

TOTAL DEBT RATIO - Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

TRUTH-IN-LENDING - A federal law requiring disclosure of the Annual percentage Rate to homebuyers shortly after they apply for the loan.

TWO-STEP MORTGAGE - Mortgage in which the borrower receives a below-market interest rate for a specified number of years (usually 5 or 7 years), and then a new interest rate adjusted (within limits) to market conditions at that time.

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U

UNDERWRITING - The decision whether to make a loan based on credit, employment, assets, and other factors and matching this risk to an appropriate rate, term and loan amount.

V

VETERANS ADMINISTRATION (VA) - A government agency guaranteeing mortgage loans with no down payment to qualified veterans.

VA LOAN - Long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Borrowers qualified by military service or other entitlements.

VA MORTGAGE FUNDING FEE - A basic funding fee of 2.0 % must be paid to VA by all but certain exempt veterans. A down payment of 5 % or more will reduce the fee to 1.5 % and a 10 % down payment will reduce it to 1.25 %. A funding fee of 2.75 % must be paid by all eligible Reserve/National Guard individuals. A down payment of 5 % or more will reduce the fee to 2.25 % and a 10 % down payment will reduce it to 2.0 %.

VARIABLE RATE MORTGAGE (VRM) - See adjustable rate mortgage.

VERIFICATION OF DEPOSIT (VOD) - Form signed by the borrower's bank or lender verifying the status and balance of financial accounts.

VERIFICATION OF EMPLOYMENT - Form signed by the borrower's employer(s) verifying his/her position and salary.

W

WRAPAROUND - When an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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Brak Realty
3433 N. Leavitt, Chicago, IL 60618   ::   ph 773-477-7300   ::   fax 773-477-0526   ::   e-mail



	G GOOD FAITH ESTIMATE - An estimate of charges which a borrower is likely to incur in connection with a settlement. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - Also known as "Ginnie Mae," provides sources of funds for FHA and VA residential mortgages. GRADUATED PAYMENT MORTGAGE (GPM) - Flexible-payment loan payments increase for a specified period of time and then level off. This type of loan has negative amortizationbuilt into it. GROSS MONTHLY INCOME - The total amount the borrower(s) earns each month, before any expenses are deducted. GUARANTEE - Promise to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform to a contract.

H HAZARD INSURANCE - Insurance which protects the borrower and home from specified losses, such as fire, windstorm, etc. HOME EQUITY LINE OF CREDIT - A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only. HOME EQUITY LOAN - a loan secured by a second deed of trust on a house, typically used as a home improvement loan. HOUSING EXPENSES-TO-INCOME RATIO - The ratio, expressed as a percentage, obtained by dividing borrower's housing expenses by his/her gross monthly income. See debt-to-income ratio. HUD - The U.S. Department of Housing and Urban Development.
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			I IMPOUND - Portion of the borrower's monthly payment collected by the lender to pay taxes, hazard insurance, mortgage insurance, and other items as they become due. Also known as reserves. INDEX - The rate against which lenders measure the difference between the current rate on adjustable rate loans and that earned by other investments, (U.S. Treasury security yields, monthly average interest rate on loans closed by savings and loans, and monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate up or down. INVESTOR - Money source for a lender.

			J JUMBO LOAN - Loan which is larger than the limits ($203,150) set by FNMA and FHLMC. Because jumbo loans cannot be funded by these agencies, they usually carry a higher interest rate.
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			L LIEN - A claim upon a piece of property for the payment of satisfaction of a debt or obligation. LENDER - The bank, mortgage company, or mortgage broker offering the loan. LIFETIME CAP - A provision of an ARM that limits the highest rate that can occur over the life of the loan. LOAN-TO-VALUE RATIO - The relationship between the amount of the loan and the appraised value of the property expressed as a percentage. LOCK PERIOD - The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days. LOCK-IN - A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
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			M MARGIN - Rate expressed as a percentage that a lender adds to the index on an adjustable rate loan to establish the adjusted interest rate. MARKET VALUE - Price that a buyer would pay and a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time. MORTGAGE - A legal document that pledges a property to the lender as security for payment of a debt MORTGAGE INSURANCE - Paid to insure the mortgage when the down payment is less than 20 %. See Private Mortgage Insurance. MORTGAGEE - The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender. MORTGAGOR - The borrower or homeowner.
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			N NEGATIVE AMORTIZATION - Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. NET EFFECTIVE INCOME - The borrower's gross income minus federal income tax. NON-ASSUMPTION CLAUSE - Statement in a loan contract forbidding the assumption of the loan without the prior approval of the lender. NON-CONFORMING LOAN - Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $240,000 and above. NOTE - A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.
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			O ORIGINATION FEE - Fee charged by lender to prepare loan documents, credit checks, etc.; usually computed as a percentage of face value of the loan. OWNER FINANCING - A property purchase transaction in which the property seller provides all or part of the financing.

			P PERIODIC CAP - The maximum rate increase for a specific period for a specific loan (ARM) only. PITI - Principal, interest, taxes, and insurance. Also called monthly housing expense. PLANNED UNIT DEVELOPMENTS (PUD) - A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels. POINTS (LOAN DISCOUNT POINTS) - Prepaid interest assessed at closing by the lender. Each point is equal to 1 % of the loan amount. POWER OF ATTORNEY - A legal document authorizing one person to act on behalf of another. PREPAIDS - Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc. PREPAYMENT PENALTY - Fee charged for early repayment of some types of loans. Usually 6 months interest on 80% of current balance. PRINCIPAL - The balance, not including interest, left on a loan. PRIVATE MORTGAGE INSURANCE (PMI) - For loans over 80% loan-to-value. Lenders will loan up to 95% in some cases. With the higher LTV loans, borrowers are required to carry private mortgage insurance, which requires an initial premium and may require an additional monthly fee depending on your loan's structure.
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	U UNDERWRITING - The decision whether to make a loan based on credit, employment, assets, and other factors and matching this risk to an appropriate rate, term and loan amount.

V VETERANS ADMINISTRATION (VA) - A government agency guaranteeing mortgage loans with no down payment to qualified veterans. VA LOAN - Long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Borrowers qualified by military service or other entitlements. VA MORTGAGE FUNDING FEE - A basic funding fee of 2.0 % must be paid to VA by all but certain exempt veterans. A down payment of 5 % or more will reduce the fee to 1.5 % and a 10 % down payment will reduce it to 1.25 %. A funding fee of 2.75 % must be paid by all eligible Reserve/National Guard individuals. A down payment of 5 % or more will reduce the fee to 2.25 % and a 10 % down payment will reduce it to 2.0 %. VARIABLE RATE MORTGAGE (VRM) - See adjustable rate mortgage. VERIFICATION OF DEPOSIT (VOD) - Form signed by the borrower's bank or lender verifying the status and balance of financial accounts. VERIFICATION OF EMPLOYMENT - Form signed by the borrower's employer(s) verifying his/her position and salary.

	W WRAPAROUND - When an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
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