The full service and mortgage site allowing you to understand the current government loan and mortgage entitlements
Agreement of Sale - Also know as the Purchase Agreement,
Sales Agreement, Deposit Receipt, Offer to Purchase, or Contract of Purchase
according to local custom. When executed by both parties, it is the contract
in which the selling price, specific terms, and conditions under which
the seller agrees to sell and a buyer agrees to buy a property.
Amortization - a mortgage payment plan whereby a portion
of each payment is applied to the interest and the balance to reducing
the principal, the result of which is that the loan if full re-paid within
the specified term.
Annual Percentage Rate - Congress' inept attempt to give
consumers the ability to differentiate between loan programs offered by
various lenders by making lenders disclose the "true" cost of
borrowing. It is an imperfect solution to the problem. See the Chapter
"Everything you wanted to know about APR but were afraid to ask.
Application Fee - Some lenders charge an up-front Application
Fee to cover some of the costs of processing the loan application. Sometimes,
the lender only collects the actual costs of an appraisal and credit report.
Appraisal - An opinion of value as of a given date of
a property prepared by an expert. The experts are usually licensed in
the state. For residential loans, the report is invariably prepared on
FNMA form. Note - Realtors frequently provide homeowners who are potential
clients an Estimate of Value or Market Analysis, showing recent comparable
sales and other market data. The conclusion they reach may be very accurate
or not depending upon the ability of the Realtor but their report is not
an appraisal and in some states they are precluded from using the word
appraisal to describe it.
Assessed Value - The value of a property for tax purposes
according to the Tax Assessor of the jurisdiction in which the property
is located. This number bears very little relation to the current market
value of the property
Assumption - The process whereby a purchaser of a property
is substituted for the original borrower upon approval of the lender.
The original mortgagor is to be released from further liability in the
Please make note: Assumption should not be confused with purchasing a property "subject to" the current mortgage where the new buyer makes the payments but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. The Garn - St.Germain bill in the mid 1980's generally gave lenders the right to require payoff of the loan upon sale of the property. In my view, it is a dangerous practice to purchase a property without telling the lender, "hoping that they will not notice."
FHA and VA loans are virtually the only fixed rate loans which are assumable. ARM's, on the other hand, are always presumed to be "at market rate" and are almost universally assumable at the discretion of the lender.
Basis Point - 1/100th of 1%. A term used mostly by bond
people who figure in the mortgage business because so many loans are securitized.
If you look in your paper and see that the yield on the 30 year bond fell
from 7.87% to 7.82%, it fell 5 basis points. Mortgage rates dropped a
little bit too but not enough for most people to notice to notice. A %
drop would be equal to 25 basis points.
Closing Costs - The expenses in addition to down payment
which buyers normally incur in the settlement process. The agreement of
sale negotiated previously between the buyer and the seller may state
in writing who will pay each of the above costs.
- Lender's Fees
Loan Origination Fee
Processing, Underwriting, and Document Fees (Garbage fees)
- Fees to others
Recording Deed and Mortgage
Lender's Title Insurance Premium
- Deposits and expenses which are not related to the loan
Homeowners Insurance Premium
Condominium Association Transfer fee and dues.
Condominium - A type of Planned Unit Development where the form of ownership is where the buyer purchases individual ownership of a dwelling unit and a share of the common areas and facilities which serve the multi-unit project. For example, you may own unit 14 and a 1/60th interest in the pool and clubhouse facilities of your project.
It is very important to know that lenders frequently have a number of
restrictions in lending to owners of condominiums. As a basis for this,
it is helpful to understand that as the owner of a condominium unit, the
value of your unit as collateral for the loan is not it's full sales price.
The other part is your share of the value of the Association owned assets,
such as a pool, clubhouse, and the common area. The value of these assets
is beyond your individual control. Their ongoing value is a function of
the willingness of all your fellow owners to continue to pay dues to the
Association so it can maintain values of common owned property.
Contract of Purchase - See agreement of sale
Conventional Mortgage - A mortgage loan not insured by
HUD or guaranteed by the Veterans' Administration.
Cooperative Housing - Also known as a Co-op and Stock
Co-op. This is a form of ownership, frequently of an apartment building,
which is owned by a corporation, the stockholders of which are the residents
of the dwellings. In a cooperative, the corporation owns title to the
real estate. The resident purchases stock in the corporation which entitles
him to occupy a unit in the building. The resident does not own his unit,
he has the right to occupy it.
Deed of Trust - In many states, the word mortgage is
used but the security instrument whereby the property is given as security
for the loan is actually a Deed of Trust. There are three parties to the
instrument: the Trustor, the borrower, the Trustee, and the Beneficiary,
the lender. The borrower transfers the legal title for the property to
the trustee who holds the property in trust as security for the payment
of the debt to the lender or beneficiary. In the event of default, the
beneficiary notifies the Trustee of the default whereupon the trustee
proceeds to sell the property at a public sale.
Usually a lender seeks a non-judicial foreclosure where the proceeds of
the sale less the costs are the lender's revenue to apply against the
loan. If the proceeds from the sale are not sufficient to pay off the
loan, the lender may not pursue other legal action against to collect
the deficiency. In some states, a lender must seek a judicial foreclosure
to recover the full amount owed.
Default - Each note will contain provisions outlining
the conditions under which the note is in default, at which time the lender
has the right to start foreclosure. The most common of these, of course,
is the failure to make payments on time. Generally, thirty days after
the due date if payment is not received, the mortgage is in default. Other
events of defaults are the failure to pay property taxes, failure to keep
adequate insurance in force, or to allow the property to deteriorate,
like knocking the house down before building a new, larger, structure.
Discount Points - Money paid up-front to obtain a lower
Down payment - The cash portion of the purchase price,
the difference between the sales price and the initial mortgage amount.
Earnest Money - The deposit money given by the buyer
to his agent or settlement agent upon the signing of the Offer to Purchase,
actually called the Deposit Receipt some places. This shows 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 is not consummated,
disposition of the earnest money is either forfeited or returned to the
buyer depending upon what is agreed to in the Offer.
Encumbrance - A legal right or interest in land that
affects a good or clear title. Usually the Agreement of Sale will provide
that the seller deliver a preliminary title policy or the results of a
title search within 10 or 15 days. The purpose of obtaining a title search
is to reveal the existence of such encumbrances and to give the buyer
the opportunity to determine whether he wants to purchase with the encumbrance,
or what can be done to remove it.
Some encumbrances, such as easement rights, Special Assessments, or restrictive
covenants (CC&R's) of a Community Associations "run with the
land" and may actually not be negative. Others such as mortgages,
judgment liens, a pending legal action, unpaid taxes, are invariably extinguished
through settlement process.
Equity - The value of an owner's interest in his property.
Equity is the difference between the property's fair market value the
total of the unpaid mortgage balance and any outstanding liens or other
debts against the property.
Escrow - In California and some other states, the settlement
agent who handles the closing of a purchase transaction is an Escrow Company.
In other states, escrow accounts, also known as impound accounts in some
areas, are lender established accounts into which the borrower makes regular
payments and periodically the lender pays some or all of the following
on behalf of the borrower: mortgage insurance premiums, property tax payments,
and/or casualty insurance premiums.
These are usually required by mortgage insurance companies where the LTV
of the original loan was greater than 80%. The reason for this is that
on such loans, the borrowers' equity in the property is not high and if
the lender were to have to foreclose, he does not want ALSO to have to
make up back taxes payment.
FNMA - The Federal National Mortgage Association, or
Fannie Mae. A quasi-governmental organization which purchases mortgage
loans from banks, S&L', and mortgage bankers, groups them in pools,
and sells security interest in the pools to institutional investors. Such
sales make up a portion of the Secondary Market.
FHLMC - The Federal Home Loan Mortgage Corporation, or
Freddie Mac. Similar to FNMA, Freddie Mac is also a purchaser or loans.
Loans which conform to FNMA/FHLMC standards are referred to as Conforming
Foreclosure - The legal process of a lender of enforcing
payment of the debt secured by a mortgage, or deed of trust, by taking
and selling the mortgaged property, and depriving the mortgagor of possession.
Hazard Insurance - (also Homeowners Insurance,
Fire Insurance, or Casualty Insurance) - A policy which protects the homeowner
against damages to the property caused to property by fire and other common
hazards. Note that it is invariably a requirement of the lender that you
provide for insurance coverage and that they be named as an Additional
Insured party so that their interests are also protected.
HUD - U.S. Department of Housing and Urban Development.
Office of Housing/Federal Housing Administration within HUD insures home
mortgage loans made by lenders and sets minimum standards for such homes.
HUD is also charged with enforcing RESPA and other housing related laws.
Impound - see Escrow Interest - The price paid for borrowing
money. Interest rate cap - The maximum interest rate which can be charged
on an ARM, also called ceiling rate. This is frequently 6% over the initial
interest rate. The cap can also be an "interim cap," the amount
that the interest rate can be increased at any regular change interval,
frequently 2% per year.
Lien - A claim by one person or entity on the property
of another. Commonly, this is security for money owed, as is created when
you buy a property. Such claims also may include obligations not met or
satisfied, judgments, unpaid taxes, materials, or labor.
Mortgage Commitment - A written notice from the a lender
saying it will fund the mortgage loan to enable a buyer to purchase a
Mortgage Insurance Premium - The payment made by a borrower
for a policy which protects the lender in the vent of default. In the
case of Conventional mortgages, premiums are paid to the Private Mortgage
Insurance (PMI) carrier which insured the loan. In the case of Government
loans, the premiums are paid to HUD in the case of FHA loans and to the
Veterans Administration in the case of VA loans.
Mortgage Note - A written agreement to repay a loan.
The agreement is secured by a mortgage, serves as proof of an indebtedness,
and states the manner in which it shall be paid. The note states the actual
amount of the debt that the mortgage secures and renders the mortgagor
personally responsible for repayment.
Mortgagee - The lender in a mortgage agreement.
Mortgagor - The borrower in a mortgage agreement. Open-end
Mortgage - A mortgage with a provision that permits borrowing additional
money in the future on the same note. In the case of case of conventional
loans, these are now quite uncommon. The exception is the equityline loan
which is an Open-end loan.
PITI - Principal, Interest, Taxes, Insurance which are
the borrowers' Housing Expense when making calculation for qualifying.
P.O.C. - Paid Outside of Closing is the terminology which
is used to describe funds associated with a loan transaction which do
not actually pass through the settlement agent's (escrow's) accounts.
This would include, for example, funds paid directly to the lender for
the appraisal and credit report. It also includes any other funds, such
as rebates, paid to a broker in addition to the Loan Origination Fee.
Sometimes such rebates are OK, meaning that the borrower and broker agreed
to them. Important Warning - Sometimes the P.O.C. fees are rebates the
broker got by getting the borrower to pay for an "above market rate"
Points - A point is one percent of the amount of the
loan. On a $50,000, one point is $500 while on a $200,000 loan, one point
is $2,000. When a borrower pays points, this first includes the Loan Origination
Fee. Additional points are called "discount points" and are
an off-set against interest rate. Lenders will, these days, almost always
offer a number of "rate versus fee" combinations allowing the
borrower to choose one which is most suitable for his circumstance.
Prepayment - Payment of the whole or part of principal
amount of a mortgage loan before the due date. Mortgage agreements can
restrict the borrowers right of prepayment either by limiting the amount
that can be prepaid in any one year or charging a penalty for prepayment.
Principal - the balance of the loan outstanding. Initially,
the full amount of the loan, also the amount upon which the interest payment
Purchase Agreement - See agreement of sale.
Qualifying - The process whereby the lender assesses
the borrowers' ability to re-pay the loan.
Refinancing - The process whereby a borrowers pays off
one loan with the proceeds from a new loan. When the new loan is just
enough to pay off the old loan (and perhaps some of the closing costs)
it is referred to as a Rate & Term Re-fi or a No-Cash-Out Re-fi. When
the new loan is sufficiently large so that the borrower ends up with some
cash at closing, it is know as a Cash-Out Re-fi.
Sales Agreement - See agreement of sale.
Securitization - The process whereby loans are pooled.
Special Assessments - A special tax imposed on a property
and usually all other property in the immediate area, for school or road
construction, sewers, street lights, or to put utilities underground,
and so forth.
Taxes - As applied to real estate, Property Taxes paid
to the government, usually the County or State, to support education,
police, fire protection, etc.
Title Insurance - First, an "owner's" policy
of Title Insurance protects homeowners against loss of their interest
in property due to legal defects in title. This is typically paid for
by the seller to assure that he has passed marketable title to the property
being purchased. Second and different, lenders also require that the buyer/borrower
purchase a "mortgagee's title policy" which will protect the
lender's interest, assuring, for example, that the lender is in first
Trustee - As it applies to real estate, the party or
entity given the right to hold property for another. In a Trust Deed state,
the Trustee has the "right of sale" of the property when notified
by the Beneficiary (the lender), that the Trustor (the borrower) is in
default on the note secured by the Deed of Trust.
Underwriting - the process whereby a lender determines
whether a borrower is qualified as to income and creditworthiness for
the loan for which they have applied and the property is evaluated as
to whether it is sufficient collateral for the loan.