Real Estate Dictionary 

J

JOINT TENANCY- A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.

JUDGEMENT- A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor. Alternative spelling is "judgement."

JUDICIAL FORECLOSURE- A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

JUMBO LOAN- A loan that exceeds Fannie Mae's and Freddie Mac's loan limits, currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

L

LEASE- A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.

LEASEHOLD ESTATE- A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

LEASE OPTION- An alternative financing option that allows home buyers to lease a home with an option to buy. Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.

LEGAL DESCRIPTION- A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

LENDER-A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as "lenders."

LIABILITIES- A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

LIABILITY INSURANCE- Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner's insurance policy.

LIEN- A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.

LIFE CAP- For an adjustable-rate mortgage (ARM), a limit on the amount that the enterest rate can increase or decrease over the life of the mortgage.

LINE OF CREDIT- An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

LIQUID ASSET- A cash asset or an asset that is easily converted into cash.

LOAN- A sum of borrowed money (principal) that is generally repaid with interest.

LOAN OFFICER- Also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending

institution.

LOAN ORIGINATION- How a lender refers to the process of obtaining new loans.

LOAN SERVICING- After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

LOAN-TO-VALUE (LTV)- The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

LOCK-IN- An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

LOCK-IN PERIOD- The time period during which the lender has guaranteed an interest rate to a borrower.

M

MARGIN- The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.

MATURITY- The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

MERGED CREDIT REPORT- A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.

MODIFICATION- Occasionally, a lender will agree to modify the terms of your mortgage without requiring you t refinance. If any changes are made, it is called a modification.

MORTGAGE- A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.

MORTGAGE BROKER- A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

MORTGAGEE- The lender in a mortgage agreement.

MORTGAGE INSURANCE- Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves "No MI" are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

MORTGAGE INSURANCE PREMIUM (MIP)- The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

N

NO CASH-OUT REFINANCE- A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a "rate and term refinance."

NO-COST LOAN- Many lenders offer loans that you can obtain at "no cost." You should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.

NOTE- A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

NOTE RATE- The interest rate stated on a mortgage note.

NO-POINTS LOAN- Almost all lenders offer loans at "no points." You will find the interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.

NOTICE OF DEFAULT- A formal written notice to a borrower that a default has occurred and that legal action may be taken.

O

ORIGINAL PRINCIPAL BALANCE- The total amount of principal owed on a mortgage before any payments are made.

ORIGINATION FEE- On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

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

P

PITI- This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

PITI RESERVES- A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

PLANNED UNIT DEVELOPMENT (PUD)- A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

POINT- A point is 1 percent of the amount of the mortgage.

POWER OF ATTORNEY- A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

PRE-APPROVAL- A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.

PREPAYMENT- Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

PREPAYMENT PENALTY- A fee that may be charged to a borrower who pays off a loan before it is due.

PRE-QUALIFICATION- This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

PRIME RATE- The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

PRINCIPAL- The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

PRINCIPAL BALANCE- The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

PRIVATE MORTGAGE INSURANCE (MI)- Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

PROMISSORY NOTE- A written promise to repay a specified amount over a specified period of time.

Q

QUALIFYING RATIOS- Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower's monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt.

QUITCLAIM DEED- A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

R

RATE LOCK- A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

REAL ESTATE AGENT-  A person licensed to negotiate and transact the sale of real estate.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)- A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

REAL PROPERTY- Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

RECORDER- The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

RECORDING-The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

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

REMAINING BALANCE- The amount of principal that has not yet been repaid. See principal balance.

REMAINING TERM- The original amortization term minus the number of payments that have been applied.

RENT-LOSS INSURANCE- Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

REPLACEMENT RESERVE FUND- A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.

REVOLVING DEBT- A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

RIGHT OF FIRST REFUSAL- A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

RIGHT OF INGRESS OR EGRESS- The right to enter or leave designated premises.

RIGHT OF SURVIVORSHIP-  In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

S

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

SECONDARY MARKET- The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.

 

SECURED LOAN- A loan that is backed by collateral.

SECURITY- The property that will be pledged as collateral for a loan.

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

SERVICER- An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

SUBDIVISION- A housing development that is created by dividing a tract of land into individual lots for sale or lease.

SUBORDINATE FINANCING- Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

SURVEY- A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

T

THIRD PARTY ORIGINATION- A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

TITLE- A legal document evidencing a person's right to or ownership of a property.

TITLE COMPANY-A company that specializes in examining and insuring titles to real estate.

TITLE INSURANCE- Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

TITLE SEARCH- A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

TRANSFER OF OWNERSHIP- Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.

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

TREASURY INDEX- An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

TRUTH-IN-LENDING- A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

TWO-STEP MORTGAGE- An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

V

VA MORTGAGE- A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

VESTED- Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.

VETERANS ADMINISTRATION (VA)- An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

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