Glossary of Terms
It is often said that mortgage financing has a language of its own. To help you through the process, we have a dictionary of common terms you’re likely to come across during the home financing process. Of course, if you’re unsure about a term, or you see something you’re unfamiliar with, give us a call at 888-509-2867.
Accumulated wealth. A portion of wealth that is set aside for the production of additional wealth; specifically, the funds belonging to the partners or shareholders of a business, invested with the expressed intention of their remaining permanently in the business.
Taxable profit on the sale of an appreciated asset.
Caps are used on adjustable-rate mortgages (ARMs) to limit the interest rate and/or the payment. Most ARMs have a periodic cap that is around 2% per year and a life cap of around 5%-6% over the life of the loan. "Payment only" caps sometimes create negative amortization where the principal balance of the loan increases rather than decreases over time.
Consumer safeguards that limit the amount the interest rate on an adjustable-rate mortgage may change per year and/or over the life of the loan.
Consumer safeguards that limit the amount monthly payments on an adjustable-rate mortgage may change.
CERTIFICATE OF ELIGIBILITY
The document given to qualified veterans that entitles them to VA guaranteed loans for homes, businesses, and mobile homes. Certificates of eligibility may be obtained by sending a copy of the veteran's DD-214 (Separation Paper) to the local VA office with VA form 1880 (Request for Certificate of Eligibility)
CERTIFICATE OF OCCUPANCY
Document issued by a local governmental agency that states a property meets the local building standards for occupancy.
CERTIFICATE OF REASONABLE VALUE (CRV)
An appraisal of property for the purpose of insurance by the Veteran's Administration.
CERTIFICATE OF TITLE
A certification 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 that he is offering for sale. A certificate of title offers no protection against any hidden defects in the title that an examination of the public 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.
A true copy, attested to be true by the officer holding the original.
CHAIN OF TITLE
The chronological order of conveyance of a parcel of land from the original owner to the present owner.
Person who employs the agent. Typically the seller is a client. The buyer can be a client (buyer's broker) or customer (seller's broker).
Also called settlement. Conclusion of a real estate sale wherein the title of the property is transferred to the new owners and funds are transferred to the appropriate parties (seller, old lender, real estate broker, etc.).
A neutral third party that facilitates the closing of a real estate transaction. The closing agent can be an escrow company, title company or attorney.
Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction. There can be non-recurring costs and/or pro-rated portions of recurring costs that usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge, and other costs assessed at settlement The cost of closing usually is about 3 percent to 6 percent of the mortgage amount.
Also known as a settlement statement. The statement prepared for the buyer and seller itemizing all of the costs of a real estate transaction.
CLOUD ON TITLE
An outstanding claim or encumbrance that, if valid, adversely affects the marketability of title.
CODE OF ETHICS
Standards subscribed to by members of the National Association of Realtors.
Property pledged to secure a loan.
Also known as a co-borrower. Equally responsible for repayment as the borrower.
Property intended for use by all types of retail and wholesale stores, office buildings, hotels, and service establishments.
Fee paid to a broker or other entity for services rendered. Real estate brokers and mortgage brokers receive a commission for the services they provide; a real estate broker secures a buyer for a property that is for sale and a mortgage broker secures a mortgage loan for the buyer to finance the purchase of a property. Commissions are generally paid as a percentage of the sales price in a real estate transaction or the loan amount in a mortgage transaction.
A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions.
Rules based on usage as demonstrated by decrees and judgments from the courts.
Property owned jointly by husband and wife.
Properties that are similar in value to a particular property and are used as comparisons to determine the fair market value of a specified property.
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.
A lender's promise to issue a loan subject to certain conditions. Generally, the lender will not fund the loan until the conditions have been met.
Purchase offer in which the buyer proposes to purchase property only after certain events (sale of another home, finding a loan commitment, etc.) occur.
A system of individual fee simple ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas. Each individual may sell or encumber his own unit.
Anything of value given to induce another to enter into a contract. Earnest Money Deposit on a sales contract is consideration.
A short-term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.
Condition that must be satisfied before the buyer can consummate the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller.
CONTRACT OF PURCHASE
An agreement between parties for the sale of real estate. In some states it is synonymous with a Purchase Agreement, Sales Agreement, or Land Contract. In Texas it is known as an Earnest Money Contract.
CONTRACT OF SALE
A purchase transaction in which the buyer receives possession of the property, but the seller retains title.
CONTRACT SALES PRICE
The full purchase price as stated in the contract.
ARMs that have a provision allowing the borrower to convert the mortgage to a fixed-rate term. The conversion feature is outlined in the mortgage note and has certain restrictions.
Also known as a conventional mortgage. A non-government loan provided by banks, savings and loans, mortgage bankers, and mortgage brokers.
COOPERATIVE HOUSING (CO-OP)
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 that 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.
Accounting figure that includes original cost of property plus certain expenses to purchase, plus money spent on permanent improvements and other costs, minus any depreciation claimed on tax returns over the years.
COST PLUS CONTRACT
A building contract setting the builder's profit at a set percentage of actual cost of labor and materials.
A new offer made as a result of another offer that cancels the original offer.
A division within a state, usually encompassing one or more cities or towns.
A written agreement or restriction on the use of land or promising certain acts. Homeowner associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner's association.
Decision by the lender given after it reviews the borrower's credit history and any additional supporting information provided. The approval is usually a conditional credit approval. Conditional credit approval is subject to a satisfactory title review and appraisal of the property that will secure the loan with no substantial changes prior to closing.
The maximum amount that can be borrowed on a home equity line of credit or credit card.
A report documenting the credit history and current status of a borrower's credit standing.
Typically, the buyer (before buyer agency laws), as opposed to the principal (seller).
DEBT-TO-INCOME RATIO (DTI)
The ratio, expressed as a percentage, that results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).
DECLARATION OF RESTRICTIONS
A set of restrictions filed by a sub divider to cover an entire tract or subdivision.
The voluntary giving of private property to some public use by the owner, as the dedication of land for streets, schools, etc., in a development.
Formal written document transferring title to real estate; a new deed is used for each transfer. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the state where the property is located, and should be delivered to the purchaser at closing. There are several types of deeds, including deed of trust, general warranty deed, quit-claim deed, and special warranty deed. Deeds are usually recorded at the courthouse, providing public record of the conveyance of the real property.
DEED OF TRUST
A voluntary lien to secure a debt deeding the property to a trustee. In many states, this document is used in place of a mortgage to secure the payment of a note.
DEED OF TRUST RIDER
The document required by the lender to be recorded along with the security instrument for a deed of trust.
Restrictions placed on use of real property by writing in a deed to control use and occupancy of the property by future owners.
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Title to real property that lacks some of the elements necessary to transfer good title. Title to a negotiable instrument obtained by fraud.
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.
Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the loan(s) and accrued interest.
Failure to make payments on time. This can lead to foreclosure.
The final, unconditional and absolute transfer of a deed to the grantee so that the grantor may not revoke it.
DEPARTMENT OF VETERANS AFFAIRS
An independent agency of the federal government that guarantees long-term, low or no-down payment mortgages to eligible veterans.
Also called the Earnest Money Deposit, the deposit is 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 Deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its return to the buyer.
Decrease in value to real property improvements due to wear and tear, adverse changes in the neighborhood, or any other reason.
A lender that can complete the processing and closing of an FHA loan without prior approval from the FHA.
DIRECT REDUCTION MORTGAGE
An amortized mortgage in which principal and interest are computed on the remaining balance.
Payments made during the course of an escrow or at closing.
DOCUMENTARY TAX STAMPS
Stamps affixed to a deed showing the amount of transfer tax. The documentary tax is based on X dollars for each thousand dollars of the selling price.
The rights of a widow to a portion of her deceased husband's property.
Cash to be paid by the buyer at closing to consummate a real estate transaction. Down payment is the difference between the sales price and the mortgage amount. Buyer cash required at closing includes the down payment, closing costs, and prepaid expenses.
A clause inserted in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property, also known as paragraph "17" in FNMA/FHLMC Mortgages.
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.