N

Negative Amortization: Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Non-conforming loan: Loans that do not comply with Fannie Mae or Freddie Mac guidelines. These guidelines establish the maximum loan amount, down payment, borrower credit and income requirements, and suitable properties. Loans that do conform to these guidelines may be sold to Fannie Mae or Freddie Mac.

O

Office of Thrift Supervision (OTS): The regulatory and supervisory agency for federally chartered savings institutions.

Open End Mortgage: See Mortgage

Owner Financing: A property purchase transaction in which the property seller provides all or part of the financing.

P


Package Mortgage: A mortgage covering both real and personal property.

Parcel: A separately assessed for tax purposes lot or piece of real property.

PITI: Principal, Interest, Taxes and Insurance. These components are usually included in the monthly mortgage payment.


Planned Unit Development (PUD): A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

Plat: A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Points: Sometimes called "discount points." A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on his loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans' Administration guaranteed loans (sellers can pay, however). On a conventional mortgage, points may be paid by either buyer or seller or split between them.

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.

Prepayment: Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. Lenders who impose prepayment penalties will charge borrowers a fee if they wish to repay part or all of their loan in advance of the regular schedule. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.

Principal: The basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal is the amount upon which interest is paid.

Private Mortgage Insurance (PMI): An insurance policy the borrower buys to protect the lender from non-payment of the loan.

Pro-rations: The allocation of expenses, such as taxes between buyer and seller at closing based on the number of days the property is owned during the month of closing.

Processing, Underwriting and Document Fees: Charges for the lender's services associated with making the loan.

Purchase Agreement: See Agreement of Sale

Q

Quitclaim Deed: A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

Qualifying Ratios: Lenders use certain guidelines to determine a potential borrower's credit-worthiness. The two guidelines used are the housing and debt ratios. They are expressed as two numbers like 28/36 where 28 would be the housing ratio and 36 would be the debt ratio. It means that:

1. Your housing expenses should not exceed 28 percent of your gross monthly income and
2. Housing expenses plus long- term debt should not exceed 36 percent of your gross monthly income.

The housing expenses include monthly mortgage principal, interest payments, property taxes and homeowner’s insurance. There may be other expenses, such as condominium fees, homeowners fees, special assessments, etc., that are included. Long-term debt is defined as monthly expenses extending more than 10 months into the future. The qualifying ratios may vary from lender to lender.

Please note that qualifying ratios are only a rough guidelines and underwriters consider many variables in their analysis. Many times, borrowers fall outside the guidelines, but have strong compensating factors that reflect low credit risk. Some compensating factors are history of savings, long-term job stability, a substantial down payment or excellent credit history will influence the decision to approve or deny a particular loan.

R

Rate Reduction Option: A mortgage loan with rate reduction option can be adjusted, under the right conditions, to a lower interest rate with a payment of a small fee. This allows the borrowers to adjust the interest rate on the loan without having to go through a refinancing, which could cost up to 5 percent or 6 percent of the loan amount. The interest rate or points may be somewhat higher for a loan with rate reduction option.

Real Estate Broker: A middle man 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): A consumer protection statute designed to help consumers be better shoppers in the home buying process. It requires that borrowers receive disclosures at various times. RESPA also prohibits certain practices that increase the cost of settlement services. More about RESPA

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."

Refinancing: The process of the same mortgagor paying off one loan with the proceeds from another loan.

Rescission: The cancellation of a contract. When you use your home as collateral for a loan, you generally have the right to cancel the credit transaction within three business days. This is called your "right of rescission," and it is guaranteed by the Federal Truth in Lending 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 binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

Reverse Mortgage: A special type of home loan that lets elderly homeowners convert the equity in their home into cash.

Right of Survivorship: In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

S

Sales Agreement: See Agreement of Sale

Second Home (or Vacation Home): This home is not rented and is occupied occasionally by the owners.

Second mortgage: A mortgage in addition to the first mortgage. Home equity loans, credit lines, home improvement loans are second mortgage loans. Second mortgage is subordinate to the first one. Second mortgage loans are non-conforming loans, so, they usually carry a higher interest rate, and they often are for a shorter time.

Secondary (subordinate) financing: Borrowing additional money toward the down payment. If it is acceptable, usually subject to a maximum combined LTV. Secondary financing is used as an alternative to obtaining Private Mortgage Insurance

Section 1031: Under section 1031 of the IRS, owners or real estate held for investment or for use in a trade or business can exchange their property tax-free for "like-kind" real estate.
Sec. 1031. Exchange of property held for productive use or investment. Statute.

Servicing: Servicing means the collection of payments, handling your escrow accounts and management of operational procedures, related to mortgages, that a lender performs.

Set Back Ordinance: Regulates the distance from the lot line to the point where improvements may be constructed.

Settlement (Closing)
Shared Appreciation Mortgage: A residential loan in which a borrower receives a below-market interest rate in return for which the lender receives a specified share of the future appreciation in the value of the property.

Special Assessments: A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, 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. (See 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.

State Stamps: See Documentary Stamps

Survey: A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.

T

Tax: As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Taxable Assessed Value: The assessed value of a parcel against which the tax rate is applied to compute the tax due. In case of a partial exemption, the exempt amount is subtracted from the assessed value in order to determine the taxable assessed value.

Teaser Rate: A low initial interest rate on a mortgage.
Title: As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.

Title Insurance: Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a "mortgagee's title policy." Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance.

Title Insurance Binder: Written commitment of a title insurance company to insure title to the property under the conditions stated in the binder.

Title Search or Examination: A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record, which would adversely affect the marketability or value of title.

Trustee: A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law. See Deed of Trust

Truth-In-Lending Act ( TIL, also called Regulation Z): Under this act a lender is required to provide you with a disclosure estimating the costs of the loan you have applied for, including your total finance charge and the Annual Percentage Rate (APR) within three business days of your application for a loan.

Two-Step Mortgage: With this type of loan homebuyers get a fixed rate loan at a slightly lower interest rate for a fixed period of time (most often for 5, 7, or 10 years) and then the interest rate is adjusted to fit market conditions at that time. After that adjustment, the mortgage maintains a fixed rate for the remaining years.

U

Underwriting: A process of deciding whether to make a loan based on your credit reputation, income, debt, appraised value of the house and other factors.

V


VA Loan: A mortgage for veterans and service persons guaranteed by the Department of Veterans Affairs (VA), requiring very low or no down payments and with generous requirements for qualification.

W

Wraparound Mortgage: A loan arrangement whereby the existing loan is retained and a new loan is added to the property. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.

Z

Zoning: A local government authority's specifications for the use of property in certain areas.

Zoning Ordinances: The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.

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