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.

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RATIO

Ratios are used to determine a borrower's ability to repay a loan. This ratio usually compares the borrower's fixed monthly expenses to his gross monthly income, and certain lenders have different ratio requirements. For example, the FHA requires a monthly mortgage payment of no more than 29% of monthly gross income, and that the total mortgage payment and non-housing debt of less than 41% of income.

REAL ESTATE

Land and anything permanently affixed to the land and those things attached to the building.

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 SETTLEMENT PROCEDURES ACT (RESPA)

RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

REAL ESTATE TAX

A pecuniary charge laid upon real property for public purposes.

REALTOR®

A real estate broker or an associate holding active membership in a local real estate board affiliated with the NATIONAL ASSOCIATION OF REALTORS®.

REALTOR® ASSOCIATE

Salesperson associated with a broker who is a member of the NATIONAL ASSOCIATION OF REALTORS®.

REALTY

A synonym for real estate.

RESCISSION

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

RECITAL

Setting forth in a deed or other writing some explanation for the transaction.

RECORDING

The act of writing or entering an instrument in a book or public record, usually in the office of the county clerk and recorder. Such recording constitutes notice to all persons of the rights or claims contained in the instrument. This type of notice is called "constructive notice" or "legal notice."

RECORDING FEES

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

RECOURSE

The right of the holder of a note secured by a mortgage or deed of trust to look personally to the borrower or endorser for payment.

REFINANCE

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

REFINANCING

The repayment of a debt from the proceeds of a new loan using the same property as security.

REISSUE RATE

A charge for a title insurance policy if a previous policy on the same property was issued within a specified period of time. Reissue is less than the original charge.

RELEASE

An instrument releasing property from the lien of the mortgage, judgment, etc.

RESPA

See REAL ESTATE SETTLEMENT PROCEDURES ACT.

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 be binding only between the original seller and buyer.

REVERSE ANNUITY MORTGAGE

Form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage.

REVERSE MORTGAGE

A home loan that gives cash advances to a homeowner, requires no repayment until a future time, and is capped by the value of the home when the loan is repaid.

RIGHT OF RESCISSION

A borrower's right to cancel a home loan within three business days of the closing.

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SALES AGREEMENT

See AGREEMENT OF SALE.

SATISFACTION OF MORTGAGE

Document issued by the mortgagee when the mortgage is paid off.

SECOND HOME

Commonly known as a vacation home. This home is not rented and is occupied occasionally by the owners.

SECOND MORTGAGE

A mortgage made subsequent to another mortgage and subordinate to the first one.

SECONDARY FINANCING

A loan secured by a mortgage or trust deed, which lien is junior to another mortgage or trust deed.

SECONDARY MARKET

The buying and selling of mortgage notes between sophisticated investors such as pension funds, commercial banks, savings and loans, and Wall Street firms.

SECONDARY MARKET INVESTOR

An entity, such as FNMA or FHLMC, that buys mortgage loans for investment or sells them again to another secondary market investor. Secondary market investors do not service loans and do not collect payments from borrowers.

SECURITY

Real or personal property pledged by a borrower as additional protection for the lender's interest.

SELLER'S BROKER

Agent who takes the seller as a client, is legally obligated to a set of fiduciary duties, and is required to put the seller's interests above all others’.

SEPTIC TANK

An underground tank in which sewage from the house is reduced to liquid by bacterial action and subsequently drained off.

SERVICING

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

SET BACK ORDINANCE

Regulates the distance from the lot line to the point where improvements may be constructed.

SETTLEMENT

See CLOSING.

SETTLEMENT COST, A HUD GUIDE

This booklet gives an overview of the lending process and is required by HUD. It is provided to consumers after the loan application is completed.

SETTLEMENT STATEMENT

A statement prepared by broker, escrow, or lender giving a complete breakdown of the costs associated with a real estate transaction.

SHERIFF'S DEED

A deed given at the sheriff's sale in foreclosure of a mortgage.

SIMPLE INTEREST

Interest that is computed only on the principal balance.

SINGLE FAMILY DETACHED HOME

A residential home that is not attached physically to another home.

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.

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.

SPECIFIC PERFORMANCE

Lawsuit requesting that a contract be exactly carried out, usually asking that the seller be ordered to convey the property as previously agreed.

STANDARD UNIFORM APPLICATION

An application developed by FNMA and FHLMC that is widely used in the mortgage industry.

STATE AND LOCAL HOUSING PROGRAMS

Unique housing finance programs to assist first-time homebuyers and low-to-moderate housing groups. Each state and local group has different sets of criteria.

STATUTE OF FRAUDS

The law requires that certain contracts, such as agreements of sale, be in writing in order to be enforceable.

STATUTORY LIEN

An involuntary lien; includes tax liens, judgment liens, mechanic liens, etc.

SUBSTITUTE OF TRUSTEE

A document that is recorded to change the trustee under the deed of trust.

SURVEY

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings as well as their relationships to the property surrounding them.

SURVIVORSHIP

All rights of a joint tenant pass to the surviving joint tenant.

SWEAT EQUITY

Equity created by the labor of the purchaser or borrower that increases the value of the property.