Abstract of Title
A written history of ownership of a parcel of land, summarizing the material parts of any occurrence affecting title of said land.
Acceleration Clause
A common provision of mortgage which allows the holder to demand the entire outstanding mortgage balance due and payable in the event of a breach of the mortgage contract.
Acceptance
An offeree’s consent to enter into a contract and be bound by the terms of the offer.
Access Rights
A right to ingress and egress from one’s property; may be implied or expressed.
Accommodation Party
A person who lends his name to guarantee a loan for another by signing a note, bill or other negotiable instrument; the endorser becomes the guarantor of the loan and is therefore responsible for its repayment.
Account Executive (AE)
A person who represents a specific banker or wholesale lender. This individual has detailed information, including guidelines and rates on the loan programs the lender offers. AEs are responsible for initiating and maintaining relationships with local mortgage brokers, Realtors, builders and other business partners as a referral source for the origination of home loans.
Accrued Interest
Interest accrued for the period of time elapsed since interest was last paid.
Acknowledgment
A formal declaration attached to or part of an instrument, made before a fully authorized officer (usually a notary public) by the person who has executed that instrument, the execution being a free act and deed.
Acre
An acre equals 160 square rods, or 4,840 square yards, 43,560 square feet.
Acquisition Loan
See Land Acquisition Loan.
Action of Quiet Title
A court action to remove any interest or claim in or title to real property; to remove a cloud on title.
Act of God
An event which causes damage by nature such as a flood, earthquake or winds, an occurrence which was not caused by man.
Addendum
An agreement or list that is added to a contract, agreement or other document such as a letter of intent. FHA and VA require that an addendum be added to or incorporated in a sales contract, if it is written prior to the appraisal.
Adjustable Rate Mortgage (ARM)
An ARM is a mortgage loan in which the interest rate can adjust up or down in accordance with a specific index and margin. Most ARM loans have an initial fixed-rate period before the adjustable-rate period begins. For example, an ARM with an initial fixed-rate period of 3 years, then adjusts yearly for the life of the loan, would be referred to as a 3/27 or 3/1 ARM. An ARM with the initial fixed-rate period of 2 years and adjusts annually thereafter could be referred to as a 2/28 or 2/1 ARM.
Adjusted Basis
The original cost of a property, plus the value of any expenditures for improvements to the property, minus any depreciation taken.
Adjustment Date
The date of periodic interest rate adjustments for an adjustable mortgage loan.
Ad Valorem Taxes
Real estate taxes on the assessed value of property.
Advance
In real estate, a partial disbursement of funds under a note. Most often used in connection with construction lending.
Adverse Possession
The right by which someone occupying a piece of land acquires title against the real owner, if the occupant’s possession has been actual, continuous, hostile, visible and distinct for a statutory period.
Affidavit
A sworn statement in writing, usually requiring notarization.
Agent
One who legally represents another, called a principal, from whom express or implied authority has been derived.
Air Rights
The ownership of the right to use, control or occupy the airspace over a designated property, without the right to use the land
surface.
Air Space
The space above the surface of land that is owned by the landowner and that may be divided and sold or leased to others.
Alienation
The transfer of title to real property from one owner to another.
Alienation Clause
A type of acceleration clause that demands payment of the entire balance upon sale or other transfers of title; also called a
"due-on-sale" clause.
Alternative Documentation (ALT DOC)
Instead of full income documentation such as full tax returns, some lenders offer alternative
documentation such as bank statements.
Amenity
A feature that enhances property value. Examples are off-street reserved parking within a condominium community, the proximity of
public transportation, tennis courts or a swimming pool.
American Land Title Association (ALTA)
A national association of title insurance companies, abstractors and attorneys specializing in real
property laws. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy
forms.
Amortization
A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and
interest.
Amortization, Interest-only
Payment of debt in regular, periodic installments of interest only (as opposed to principal and interest payments).
The principal amount borrowed is repaid in one payment. See Amortization, Normal.
Amortization, Negative
Payment of debt in regular, periodic installments generally of principal interest. It is possible, due to the nature of this
type of amortization, that a loan payment is less than the interest alone due for that payment. In that situation, even though regular payments
are made on time, the amount due (principal) increases. See Amortization, Normal.
Amortization, Normal
Payment of debt in regular, periodic installments of principal and interest. Each mortgage must provide through regular
monthly payments the full amortization of the loan, usually in no more than thirty (30) years. Amortization must commence no later than sixty
(60) days after final disbursement of the mortgage proceeds, except for interest-only loans and negative-amortizing loans on which the
amortization of the principal shall not be required.
Amortization Schedule
A table showing the amounts of principal and interest due at regular intervals and the remaining unpaid mortgage
balance after each payment is made.
Amount Realized
The amount of money or fair market value of other property received in a sale or exchange.
Annual Mortgage Statement
A report prepared by the lender or servicing agent for the mortgagor, stating the amount of taxes, insurance
and interest that was paid during the year and the outstanding principal balance that remains.
Annual Percentage Rate (APR)
The Annual Percentage Rate or APR represents the note rate plus specifically identified finance charges on the
loan – as shown on the Good Faith Estimate. The Annual Percentage Rate or APR is a measure of the Cost of Credit for a loan and is expressed
as an Annual Rate and is shown (and disclosed) on the Truth-In-Lending Statement.
Annuity
Periodic fixed payments to be received for a specified period of time or for life, in consideration for prior lump sum or installment
payments made to the other party in the annuity contract.
Applicant
A prospective mortgage borrower.
Application (1003)
An initial statement of personal and financial information required when applying for a loan. It is pronounced 10-0-3 not
1,003.
Application Fee
The fee charged by the lender to cover the initial costs of processing a loan application.
This typically includes the fee for the appraisal and the credit report.
Apportionment
A pro-rated division and distribution of prepaid or accrued taxes, prepaid insurance premiums, prepaid rents and other
income and expenses. When a property is sold, apportionment is used to distribute or collect funds due from the buyer and seller for income
and expenses.
Appraisal
A written estimate of a property's current market value obtained by a licensed appraiser. The appraisal is based on recent sales
information for similar properties, the current condition of the property, and how the surrounding area might affect future property value.
Appraiser
One qualified by education, training and experience to estimate the value of real and personal property.
Appreciation
The increase in the value of a property.
Appurtenance
Anything belonging to or attached to land such as a barn, garage or easement, that is part of the property and is therefore
included in a sale or transfer.
Arm’s Length Transaction
A transaction in which the parties involved are entirely independent of each other, deal with each other as
strangers, and have no reason for collusion.
Arrears
The situation in which mortgage interest and real estate taxes are paid at or after the end of the period for which they are levied.
Late payment is also described as being in arrears.
Assessed Value
The value placed on a property by a public officer, or tax board, as a basis for taxation. This is also referred to as Tax
Assessed Value.
Asbestos
An insulative fire and heat resistant material commonly used in insulation and roofing.
Assemblage
The process of acquiring adjacent parcels of land to confirm into a single site for development.
Assessed Valuation
The value that a taxing authority places upon real property that becomes the base for computing local property taxes.
Assessment
A value factor assigned to real property and used to determine real property taxes; the process of reaching the assessed
valuation. Also, an add-on tax to raise money for a special purpose.
Assessment Rolls
The public record of taxable property.
Assessor
A public official who appraises taxable property to reach its assessed valuation or base on which taxes are calculated.
Asset
A property or right owned, tangible or intangible, that has monetary value and is capable of providing future benefits to its owner.
Assignee
One who receives ownership of or interest in property.
Assignment
The transfer of ownership, rights or interest in property, as in a mortgage, lease or deed of trust.
Assignment of Lease
A mortgage clause that passes control of leases on an income producing property to the lender. Often a condition to
making a loan to ensure, in the case of mortgage default, that any continuing income from the property goes directly to the lender.
Assignment of Mortgage
A document that evidences the transfer of a mortgage from one party to another.
Assignment of Rents
A transfer to the mortgagee of the right to collect rents from tenants in the event
of default by the property owner.
Assignor
One who transfers to another ownership or interest in property.
Assumptions
An agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender
must usually approve the buyer (new debtor) before releasing the seller (existing debtor) from the liability.
Assumption of Mortgage
A buyer’s acceptance of primary liability for payment of an existing note secured by a mortgage or deed of trust.
The seller remains secondarily liable unless specifically released by the lender.
Attachment
The act of taking property by judicial order into the custody of the court as security for payment of a judgment in an impending
suit.
Attorney-in-Fact
The agent who is granted authorization to perform specific acts on behalf of the
principal.
Automatic Lender
A VA program that enables eligible single-family lenders to conduct the processing and closing of VA single-family loan
applications without VA’s prior review. The VA is, however, responsible for performing the appraisal report of all VA loans including those
performed via the Automatic Lender program.
Average Life of a Mortgage
A statistic used to determine the true yield of a mortgage. For example, a 30-year mortgage is said to have an
average life of 12 years. Investors base the yield of a mortgage on the average life as opposed to the original term.
Backup Offer
A secondary offer to buy property although the first offer has been accepted, useful in case the first offer fails.
Balance Sheet
A report of the financial position of a business at a specific point in time, showing its assets, liabilities and owner’s equity.
Balloon Mortgage & Balloon Payment
A balloon mortgage is a loan in which the amortization period is longer than the term of the loan.
Balloon loans are usually referred to as “15 due in 5.” The first number (15) refers to the amortization period - 15 years or 180 months, and the
second number refers to when the balloon (or outstanding principal balance) of the loan is due - in 5 years. If it is an amortized loan, all
payments made for the initial 5 years will have reduced (somewhat) the principal of the loan and at the end of the 5-year period, the borrow
pays off whatever is remaining (the balloon payment).
Bankruptcy
A proceeding in a federal court to relieve a person or a business of certain debts it is unable to pay. There are generally three
types of Bankruptcies: 1) Chapter 7: A court declares the person(s) free of all, or most of their debts (they don’t have to pay back their
creditors); 2) Chapter 13: The court reduces and consolidates all debts into one monthly payment; and 3) Chapter 11: This is a Bankruptcy
for small businesses, sole proprietors and partnerships. Chapter 11 does not typically affect residential mortgage lending.
Basis
The cost of a property, including improvements, refinancing costs, closing costs and similar costs, less depreciation. Basis is used for
tax purposes to calculate any profit or loss realized on sale of a property. This profit is subject to capital gains tax.
Basis Point
One one-hundredth of one percent. Used to describe changes in yield on alternative debt instruments including mortgages.
Bedroom Community
A suburban residential area where most residents commute to neighboring metropolitan areas to work.
Before-Tax Income
Gross income minus all expenses except income taxes.
Binder
Temporary insurance contract that provides coverage until the policy is issued.
Bi-weekly Mortgage
A Bi-weekly Mortgage is a mortgage payment plan in which the mortgage payments are due every two weeks. Instead of
making one monthly mortgage payment, the homeowners make their mortgage payments every other week. In reality, the homeowner is
actually making 26 mortgage payments each year, resulting in making about one additional month’s P&I payment each year. This amount goes
directly to the principal of the loan; and as a result, a 30-year amortized mortgage loan could be paid off in 20 – 22 years. That’s a reduction in
paying off their mortgage by almost 27% and is what makes the Bi-weekly Mortgage so attractive.
Beneficiary
A person who benefits from a life insurance policy, will, contract or deed of trust. In the latter case, the lender is the beneficiary.
Betterment
An improvement, replacement or maintenance which results in a higher asset valuation.
Bill of Sale
A receipt signed by a seller that certifies a transfer to title.
Binder
Temporary hazard or title insurance granted prior to the issuance of a permanent policy. In real estate, a preliminary agreement
between a buyer and seller which includes the price and terms of the contract.
Blanket Mortgage
A blanket mortgage includes more than one parcel of property. Using this technique, a person can use an existing piece
of real estate as a down payment to acquire a new piece of real estate. Investors occasionally come across deals where the loan amount
could be extremely large to finance. A blanket mortgage provides equity security, and also provides over security to the loan amount which
lenders prefer. If the investor defaults on mortgage payments, there is a potential threat that all properties may go into foreclosure. It is
recommended that when dealing with seller financing situations, the collateral property be set as collateral for a minimal amount of time. When
financing huge parcels of land, lenders prefer to group multiple lots into one blanket mortgage – it reduces the paperwork and increases
manageability.
Block
A square or rectangular portion of a city or town enclosed by streets. Often used as part of a subdivision legal description.
Bona Fide
A Latin term meaning “in good faith,” without fraud.
Book Value
The capitalized cost of an asset, less depreciation taken for accounting purposes, based on the method used for the computing
of depreciation over the useful life of the asset. The actual value of an asset after deducting depreciation and all liabilities is the net book
value.
Borrower
A mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.
Break-Even Point
The point at which occupancy income is equal to all required expenses and debt service. Used to determine the amount of
cash flow necessary to operate a residential or commercial property.
Bridge Loan
This type of loan is usually used in home purchase scenarios. As the name implies, this type of financing provides loan funds – “a
Bridge” for the borrower – from his current home (which he or she is selling) towards the down payment and loan costs for the home they are
interested in purchasing. This is generally used when the borrowers don’t have enough time to sell their current home before purchasing their
new home. The borrowers will need to be qualified based on those two mortgages. The goal of a bridge loan is to provide temporary
financing and is looked upon as a short-term loan to provide the needed funds to purchase the new home. Once the house is sold, the bridge
loan is paid off.
Broker
An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating
contracts between them.
Builder or Developer – A person or company that is actively involved in the building of homes for sale. A developer prepares raw land so that
it can be built upon.
Building Code
Regulations based on safety and health standards that govern design, construction and materials used in construction.
Building Permit
Written authorization from a local government for the construction of a new building or for extension repairs or
improvements on an existing structure.
Building Residual
A method of real estate appraisal used to determine the value of a building when the land value is known.
Built-Ins
Permanent, immovable appliances or similar features.
Buydown
This refers to the “buying down” of an interest rate. Additionally, in today’s mortgage climate, a buy down may also be paid by the
seller/builder to buy down the rate for the borrower on a graduated scale for a specific period, usually the first one to three years of the loan
term.
Buyer’s Market
Economic conditions in which the supply of housing exceeds demand. Sellers may be forced to make substantial price
concessions.
CAPS
Consumer safeguards that limit the amount that the interest rate on an adjustable-rate
mortgage can change in an adjustment interval or over the life of the loan.
CAPS (Payment)
Consumer safeguards that limit the amount the monthly payments on an adjustable-rate
mortgage may change.
Call Provision
In a mortgage or deed of trust, a condition that gives the right to demand or “call in” the demand of the obligation in the event
of a breach of specified terms or conditions. In bonds, the issuer’s right to redeem the bond before maturity.
Cancellation Clause
In a lease or other contract, a provision detailing conditions under which each
party may terminate the agreement.
Carryback Financing
An agreement in which the seller takes back a note for part of the purchase price secured by a junior mortgage,
wrap-around mortgage or contract for deed.
Cash Out
Any cash received when a borrower obtains a new loan that is larger than the remaining balance of the current mortgage. The
cash-out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.
Caveat Emptor
Latin for “let the buyer beware.” This term signifies that the seller offers goods “as-is,” with no warranty.
Certificate of Completion
A document issued by an appraiser stating that construction is completed in accordance
with the terms, conditions, approved plans and according to specifications.
Certificate of Eligibility
A document issued by the Veterans Administration that verifies a veteran’s eligibility for a VA mortgage guarantee.
Certificate of OccupancyWritten authorization given by a local municipality that allows a newly completed or substantially renovated
structure to be inhabited.
Certificate of Reasonable Value (CRV)
A document issued by the Veterans Administration that establishes the maximum value
and loan amount for a VA guaranteed mortgage.
Certificate of Sale
An affidavit issued to the buyer of real property at a judicial or tax sale which guarantees the deed of the parcel purchased
pending court confirmation.
Certificate of Title
A written opinion of the status of a title to a property, given by an attorney or a title company. This certificate does not
offer the protection given by title insurance.
Chain of Title
The chronological order of conveyance of a property from the original owner to the present owner.
Chattel
Personal property.
Chattel Mortgage
An agreement between a secured party and a debtor creating a security interest in
personal property.
Clear Title
Unencumbered title to real property, free of liens or defects. Also, “free and clear.”
Closed-End Mortgage
A mortgage under which the mortgagor is prohibited from borrowing additional funds under the same mortgage.
Closed Period
The interval of time under a mortgage during which the loan cannot be prepaid.
Closing
The closing is when all the parties of a mortgage loan come together for the purpose of signing the loan documents. This includes
the escrow closing representatives and/or attorneys, and/or buyers and sellers of a property. In a mortgage refinance loan, only the
homeowners attend with the escrow representatives or the attorney presiding.
Closing Costs
Costs for services that must be performed to process and close the loan application. Examples include title fees, recording
fees, appraisal fees, pest inspection, attorney’s fees, taxes, and surveying fees. Also known as settlement costs.
Closing Statement
Financial disclosures giving an account of all funds received and expected at closing, including escrow deposits for taxes,
hazard insurance and mortgage insurance. All FHA, VA and most conventional financing loans use a uniform settlement statement called the
“HUD-l.” Some equity loan products use a settlement statement called the “HUD-IA.”
Cloud on Title
Any outstanding claim or encumbrance which, if valid, would affect or impair title. It can be removed by a quitclaim deed,
release or court action.
Combined Loan-to-Value (CLTV) When there are two or more mortgages on a property, we use the term Combined Loan-To-Value (CLTV) to
represent the total loan amounts in relation to the appraised value of the subject property. Example: if your customer has an existing first
mortgage of $80,000 on a property worth $100,000, and wants a second of $15,000, these two loans would result in a 95% CLTV.
Collateral
Property pledged as security for a debt, for example, real estate pledged
as security for a mortgage.
Color of Title
An act that indicates good title, but, in fact, contains some defect.
Commingling
Funds separately owned and/or accounted for but pooled in a single account.
Commission
A real estate agent’s or broker’s compensation for negotiating a real estate or loan transaction often expressed as a
percentage of the selling price.
Commitment
An agreement, often in writing between a lender and a borrower, to loan money at a future date, subject to specified
conditions. In secondary marketing, an agreement in writing, between a lender and an investor to buy and sell mortgages under specific terms.
Common Area
An area owned by the owners or tenants of a complex or subdivision for the common use of tenants.
Community Association
A group composed of property owners that serve to protect and maintain a neighborhood or commonly owned
properties.
Community Property
In some states, form of ownership under which property acquired during a marriage is presumed to be owned jointly
unless acquired as separate property of either spouse.
Co-Mortgagor
A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor’s income, assets and debts are
combined with the mortgagor’s for underwriting and ratio analysis purposes. The co-mortgagor’s name must appear on the FHA firm
commitment and the mortgage or deed of trust. For full guarantee under the VA’s program, the co-mortgagor must be either a spouse or
another eligible veteran.
Comparables
Refers to “comparable properties,” properties used for comparative purposes in the appraisal process. Comparables are
properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold.
Comparables help the appraiser determine the approximate fair market value of the subject property. Also known as comps.
Completion Bond
A bond furnished by a contractor to guarantee completion of construction.
Compliance Inspection Report (CIR)
A report given a lender by a designated compliance inspector indicating whether construction or repairs
conform to conditions established by prior inspection.
Compound Interest
Interest computed on both original and accrued interest.
Concession
A discount or other inducement given by a landlord or seller to a prospective tenant or buyer to induce them to sign a lease or
purchase property.
Condemnation
The taking of private property for public use under the right of eminent domain with just compensation paid the owner.
Conditional Commitment
During HUD/FHA mortgage insurance processing, it indicates the satisfactory completion of technical processing
involving the estimated cost of the project, the “as-is” value to the site, a detailed estimate of operating expenses and taxes, supportable
costs, the financial and credit capacity of sponsors, financial requirements and mortgage amounts.
Conditions and Restrictions
Limitations on the use of land and resulting penalties for failure to comply. Commonly used by land subdividers
on newly plotted areas.
Condominium
A real estate project in which each unit owner holds title to a unit in a building, an undivided interest in the common areas of
the project, and sometimes the exclusive use of certain limited common areas. The condominium may be attached or detached. The number
of floors in a condominium building will determine whether it is a high rise or low rise condominium.
Condominium Declarations
The basic condominium documents that
must be registered by the originating property owner prior to the conveyance of
the first unit sold. The declaration thoroughly describes the entire condominium
entity, including each unit and all common areas and specifies essential elements
of ownership that permanently govern its operation. Also known as a master deed.
Conforming Loans
Conforming loans are loans that satisfy the underwriting guidelines as stipulated by FNMA and FHLMC.
Contract of Sale
Agreement between buyer and seller on the purchase price, terms, and conditions of a sale. Also know as sales contract
and earnest money contract.
Consideration
Something of value offered and accepted in exchange for a promise without which a contract is unenforceable.
Constant Payments
A periodic payment of a fixed amount that includes interest and principal. As the loan amount reduces, the portion of the
payment applied to the principal increases. Standard home mortgages are constant payment loans.
Construction Costs
All costs incurred in the completion of a construction project, including land, labor, overhead and builder’s profit.
Contiguous
Adjoining.
Contingency
A clause in a contract that requires the completion of a certain act or the occurrence of a certain event before the contract is
binding.
Contingency Reserve
A reserve account in which funds are held until certain specified conditions are satisfied.
Conventional Financing
In real estate, mortgage financing which is not insured or guaranteed by a government agency such as HUD/FHA, VA
or the Farmers Home Administration.
Convertible Mortgage (or Feature)
A convertible feature allows the borrower with an ARM loan, to convert to a fixed-rate loan after a
specified period of time. Usually this is prior to when the ARM reaches its adjustable-rate period (after its initial fixed-rate period).
Convey
The act of transferring title to real property from one party to another.
Conveyance
This refers to the transfer of ownership of real property
from one person to another.
Cooling-Off Period
A period of time, provided by law or by contract, during which a party to a contract can back out of a contract legally.
Cost of Funds Index (COFI) pronounced (coffee)
An index of the weighted average interest rate paid by savings institutions for sources of
funds. This can affect some interest rates.
Cooperative
In real estate, a form of multiple ownership in which a corporation or business-trust entity holds title to a property, (usually an
apartment complex) and grants occupancy rights to shareholder tenants through proprietary leases. Also called a co-op.
Corporation
A business entity owned by a group of owners called stockholders. A corporation is considered an artificial person under law.
Correlation
The final step in the appraisal process where the appraiser considers three estimates of value derived from cost, income and
market data approaches. The correlation process weighs the influence of each method in relation to the specific property type and final
estimate of value.
Correspondent
A specialized type of mortgage banker whose function is limited to the origination of mortgage loans that are sold to other
mortgage bankers or investment bankers.
Co-Signer
One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only
personal liability and has no ownership interest in the property; his/her income and obligations are used in the underwriting process to
reinforce the credit of the principal borrower.
Cost Approach to Value
A valuation approach in which the value of a property is determined by computing the replacement value of
improvements, depreciation and the value of the land.
Covenant
A legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good
repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default as defined by the
mortgage, and can be the basis for foreclosure.
CRA (Certified Review Appraiser)
The highest professional designation awarded to appraiser members of the National Association of Review
Appraisers and Mortgage Underwriters.
Credit Bureau
A clearinghouse for credit-history information. Credit grantors provide the bureau with factual information on how their credit
customers pay their bills. The bureau regularly assembles this information, along with public record information obtained from courthouses
around the country, into a file on each customer. This report is called a credit report.
Credit Rating
A rating given to a person or company that established credit-worthiness based upon present financial condition, experience
and past credit history.
Credit Report
A report that details the credit history of a prospective borrower and that is used to help determine borrower
creditworthiness.
Credit Score
A statistical method of assessing a borrower’s credit worthiness. Credit card history, amount of outstanding debt, type of
credit used, negative information such as bankruptcies or late payments, collection accounts and judgments, too little credit history, and too
many credit lines with the maximum amount borrowed are all included in credit scoring models to determine a credit score.
Cubage (Cubic Feet)
An appraisal method using the cost approach. The front or width of the building is multiplied by the depth of the
building and by the height, figured from the basement floor to the outer surfaces of the walls and roof. The total cubic measurement is then
multiplied by a cost per factor to obtain the appraisal figure.
Curable Depreciation
Items of physical deterioration and functional obsolescence that can be repaired or replaced by a prudent property
owner.
Date File Received
Date when the file was received, and must be the same as the application date entered on the computer system. The
application date is defined as follows:
a. Retail Origination: The date on a completed loan application is received. In a face-to-face interview, this is the date the borrower signs the
initial loan application. If the initial loan application is received by mail, this date is the actual date the application was received.
b. Wholesale Origination: The date on which a complete loan file is received from the broker.
Date File Approved or Rejected
This is the actual approval or rejection date, rendered by the underwriter:
a. Retail Origination: The date on which the underwriter has rendered an approval or denial.
b. Wholesale Origination: The date on which the underwriter has rendered an approval or denial.
Debt to Equity Ratio
The proportion of capital borrowed to the amount of capital invested out-of-pocket or obtained through the sale of
common stock, also called leverage ratio.
Debt Service
A borrower’s periodic mortgage payments comprised of principal plus interest on the unpaid mortgage balance.
Decree of Foreclosure and Sale
In a judicial foreclosure, the court decree of judgment that established the amount of the mortgage debt
and orders the property sold to satisfy the debt.
Dedication
The granting of land by the owner for some public use and its acceptance for such
use by authorized public officials
Deed
A legal document with which title to real property is transferred from one owner to another. The deed contains a description of the
property and is signed, witnessed, and delivered to the buyer at closing.
Deed-in-Lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.
Deed of Re-conveyance
The transfer to a legal title from the trustee to the trustor (the borrower) after the trust deed is paid in full.
Deed of Trust
A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property
has repaid the debt in full.
Deed Restriction
A condition placed in a deed limiting or restricting the use of the real property.
Default
Failure to meet legal obligations in a contract, including failure to make payments
on a loan.
Defect of Record
An encumbrance on a title that is made a part of the public record. Some recorded defects are judgments, mortgages,
other liens or easements.
Deferred Maintenance
Postponed, infrequent or inadequate maintenance practices on a building or property often resulting in physical
depreciation and loss of value. Also called curable physical depreciation.
Deficiency judgment
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off
the loan.
Delinquency
Failure of a borrower to make timely payments under a loan agreement.
Delinquency Ratio
Ratio of number of past due loans to total number of loans serviced.
Delivery
In mortgage banking, the physical transfer of loan documents to an investor or agent in conformance with the commitment.
Demand Note/Mortgage
A note or mortgage that the lender can call due at any time and without prior notice.
Density
The ratio between total land area and the number of residential or commercial structures placed upon it. Local ordinances usually
regulate density.
Deposit
A sum of money given to: (I) bind a sale of real estate; or (2) assure payment or an advance of funds in the processing of a loan.
Also called earnest money.
Deposit Receipt
A form used to accept the earnest money that binds an offer to purchase real property.
Depreciation
A decline in value of a building or other real estate improvement, resulting from age, physical wear and economic or functional
obsolescence. This figure is deducted annually from net income.
Developer
A person or entity who prepares raw land for building sites or rehabilitates existing buildings.
Direct Endorsement (DE)
A HUD program that enables an eligible single-family lender to conduct the processing and closing of FHA
single-family loan applications without HUD’s prior review.
Disbursement
Actual payment of monies. Used to describe construction loan draws.
Disclosure
Information relevant to a specific transaction that is required by law.
Discount
In loan originations, a discount refers to an amount withheld from loan proceeds by a lender. In secondary market sales, a discount
is the amount by which the sale price of a note is less than its face value. In both instances, the purpose of a discount is to adjust the yield
upward either in lieu of interest or in addition to interest. The rate or amount of discount depends on money market conditions, the credit of
the borrower and the rate or terms of the note.
Discount Points
This is an amount expressed as a percent of the total loan amount that
may be charged to the borrower for the purpose of buying down the interest rate.
Discount Rate
In central banking, the rate the Federal Reserve charges to member banks that borrow money from It.
Dispossess
To obtain physical possession of property by due process of law.
Documentary
Estate
In some states, a form of tax levied on the transfer of real property based on the sale price of equity transferred.
Document Preparation Fee
Occasionally lenders will use outside companies to prepare the loan closing documents; this fee covers the cost
of this service.
Documentary Stamps
A mark “stamped” onto a deed and certifying the amount of transfer tax paid.
Dominant Estate
When an owner of property is given certain rights to use another’s property.
Dower
Rights a person has to a spouse’s property at the spouse’s death. Dower laws are changing in many states.
Down Payment
The amount required up front to purchase a property. This amount will vary depending on the type of loan being obtained,
the creditworthiness of the borrower, etc. Also defined s the cash portion of the purchase price paid by a buyer from his own funds as
opposed to the portion of the purchase price that is financed.
Draw
Periodic advances of funds according to the schedule of payments in a construction loan agreement. Also called advance,
disbursement, pay out, progress payment or takedown.
Drawing the Docs
Refers to the process of the lender preparing and sending the loan documents to the closing agent. When the loan docs
are prepared, all prior-to-doc conditions have been satisfied for this loan.
Due-on-Sale
A clause in a mortgage stating that if the mortgagor sells, transfers or in any way encumbers the property, then the mortgagee
has the right to implement an acceleration clause making the balance of the obligation due.
Duplex
A property divided into two living units and residences, generally having separate entrances, kitchens and bathrooms.
Duress
Compulsion, pressure or coercion under protest.
Dwelling Unit
Living quarters occupied or intended for occupancy by a household.
Earnest Money
A deposit made by a buyer toward the down payment in evidence of good faith when the purchase agreement is signed.
Easement
A right to the limited use or enjoyment of land held by another. Also, an interest in land to enable sewer or other utility lines to be
laid or to allow access to a property.
ECOA – Equal Credit Opportunity Act
A federal law that requires lenders and other creditors to make credit equally available without
discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. Also
called “Regulation B.”
Economic Life
Estimated period of time during which a property can be used by its owner
to produce income.
Effective Age
For purposes of appraisal, the physical age given to a building based on its present condition which may differ from its actual
age.
Effective Gross Income
Normal annual income, principally salary, that is regular, significant and stable.
Effective Interest Rate
The actual rate of return to the investor, considering commitment fees, loan points or other fees. Also called yield.
Effective Yield
The annual return expressed as the face interest rate divided by the amount invested, used when a mortgage or other debt
instrument is bought at a discount or premium.
Egress
To go out. It is used with the word ingress (to go in) to describe the right of access to land.
Eminent Domain
The right of government bodies, public utilities and public service corporations to take private property for public use (e.g.,
schools and roads) upon payment of its fair market value.
Encroachment
An improvement that illegally violates another’s property or right to use that property.
Encumbrance
A claim, lien, charge or liability attached to and binding real property. Any rights to or interest in, land which may exist in one
other than the owner, but which will not prevent the transfer to fee title.
Endorsement
A signature on a negotiable instrument by which title to property mentioned therein is assigned and transferred. Also, a
notation added to an instrument after execution to change or clarify its contents. In insurance, coverage may be restricted or enlarged by
endorsing a policy. In FHA loans, a notation placed on the note by the FHA indicating that the loan is insured under the National Housing Act.
Engineer’s Report
A report rendered by an engineer stating that the physical condition of the property has been inspected with a
summation or recommendation thereof.
Environmental Impact Statement (EIS)
A document required by many federal, state and local environmental land use laws, containing an
analysis of the impact that a proposed change may have on the environment of a specific geographic region. It examines a wide variety of
physical, social and economic conditions that would be affected by the proposed development. The analysis covers effects that cannot be
avoided, alternatives to the proposed change, short-term vs. long-term uses and long-term productivity, irreversible commitments of
resources and the benefits to be derived from the proposed change.
Equifax
One of the three largest credit bureaus in the United States.
Equity
Equity is an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the
fair market value of the property.
Equity of Redemption
The common law rights to redeem property following default on a mortgage by paying
the unpaid debt plus interest and costs prior to the foreclosure sale. In some states,
the mortgagor has a statutory right to redeem property after a foreclosure sale.
Errors and Omissions Insurance (E&O Insurance)
Liability insurance coverage for errors, mistakes and negligence in the usual activities of a
mortgage banker. Fraudulent behavior is not included.
Escape Clause
A clause that allows a tenant to cancel a lease in situations that would not necessarily justify lease cancellation.
Escheat
Property taken into state ownership in the absence of the original owner or upon the owner’s death in that state, without heirs.
Escrow
A transaction in which a third party acts as the agent for the seller and the buyer, or for the borrower and the lender, in handling
legal documents and disbursements of funds.
Escrow Account
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage
payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they
become due. Also known as impound account.
Escrow Agent
A person with a fiduciary responsibility to the buyer and the seller, or the borrower and the lender, to ensure that the terms
of the purchase or loan are carried out.
Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay
taxes, insurance and other bills when due.
Escrow Instructions
Instructions issued by escrow which are signed by both buyer and seller and enable an escrow agent to carry out the
procedures necessary to transfer real property or other assignable interest.
Escrow Overage or Shortage
The difference, determined by escrow analysis, between escrow funds on deposit and escrow funds required
to make a payment when it becomes due.
Escrow Payment
The portion of a mortgagor’s monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage
insurance, lease payments and other items as they become due. Also called impounds or reserves in some states.
Estate
The ownership interest an individual has in real property. The sum total of the
entire real and personal property owned by an individual at the time of death.
Estimated Closing Fees
An estimate of the fees that must be paid on or before the closing date by the buyer and the seller for services,
taxes, and other items necessary to obtain the mortgage. These fees will average between 2 and 5% of the loan amount and vary by lender,
property location, and type of mortgage.
Estoppel Certificate
A written statement setting forth certain facts about a piece of real estate, such as the precise amount of indebtedness
remaining.
Estoppel Letter
A statement that, in itself, prevents its issuer from later asserting different facts.
Et Al & Et Ux
May be used on a Title or Property Profile. ET AL means “and others.” ET UX means “and wife.”
Et Uxor
Legal term meaning “and wife”; sometimes abbreviated “et ux.”
Eviction
The lawful expulsion of an occupant from real property.
Evidence of Title
Proof of ownership of property.
Examination of Title
The review of the chain of title as revealed by an abstract of title or public record.
Exception
In legal descriptions, that portion of land to be deleted or excluded. The term is also used to describe an objection to title or
encumbrance on title.
Exclusive Listing
A written contract giving one licensed real estate agent the exclusive right to sell a property for a specified time, but
reserving the owner’s right to sell the property alone without the payment of a commission.
Exclusive Right to Sell
A written contract giving one real estate agent the right to sell a piece of real property and entitling that agent to a
commission upon sale regardless of who finds a buyer.
Exculpatory Clause
A clause in a contract holding a specified party harmless in the event of default. For example, the provision in a note that
the debtor will not be held personally liable in the event of default.
Execute
Recordation of the appropriate signatures on a document such as a mortgage note to render it “in effect.”
Execution
A judicial order directing an appropriate officer of the court to enforce a judgment against the property or person of the judgment
debtor in an attempt to satisfy the judgment.
Executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. Executrix is the
feminine form.
Exempt Property
Real estate not subject to property taxes. Religious, educational and charitable organizations generally hold exempt
property.
Experian
One of the three largest credit bureaus in the United States.
Express Fee or Courier Fee
On refinance transactions, escrow companies will typically use an overnight courier (Fed Ex) to expedite the
payoff of an existing loan. This fee covers the cost of the courier.
Extended Coverage Endorsement
An endorsement that may be attached to insurance policies which extends the breadth of coverage.
Extension
Continuation past original maturity date, continuation of a commitment.
FAIR, ISAAC & CO.
The company that invented credit scoring software.
Fair Market Rent
An amount determined by HUD or the appraiser to be the cost of modest, non-luxury rental units in a specific market area.
Fair Market Value
The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable
knowledge of all pertinent facts and neither being under any compulsion to buy or sell.
Fannie Mae (FNMA)
Acronym for the Federal National Mortgage Association, the nation’s largest mortgage investor. A quasi-governmental
secondary market organization that offers various mortgage purchase and securitization programs. A government sponsored institution (GSI).
Farmers Home Administration (FMHA)
A government agency within the Department of Agriculture that operates under the Consolidated Farm
and Rural Development Act of 1949. This agency provides financing to farmers and other qualified borrowers who are unable to obtain loans
elsewhere.
Federal Deposit Insurance Corporation (FDIC)
Originally established by the Banking Act of 1933 to protect depositors from loss. As a result
of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the FDIC administers the Bank Insurance Fund (BIF) and
the Savings Association Insurance Fund (SAIF).
Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC) A government sponsored enterprise that exists for the same purposes as
Fannie Mae.
Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD) that provides
mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does
it plan or construct housing. While there are limits to the size of FHA loans, they are intended to finance moderately priced homes.
Federal National Mortgage Association (Fannie Mae or FNMA)Fannie Mae is a private, shareholder-owned company that is the largest supplier
of home mortgage funds. This government sponsored enterprise’s main purpose is to facilitate the sale of conventional loans in the
secondary market. Fannie Mae does not lend funds directly to home buyers. The current conforming loan limit is $417,000.
FHA Value
The value established by the FHA as the basis for determining the maximum mortgage amount that may be insured on a specific
property. The FHA value is the sum of the appraised value of the property plus HUD/FHA’s estimate of closing costs.
Federal Housing Financing Board (FHFB)
A regulatory agency created in 1989 to oversee the twelve Federal Home Loan Banks. This
organization replaced the Federal Home Loan Bank Board (FHLBB).
Federal Reserve System
The central federal banking system that provides service and regulates member commercial banks.
Fee Simple
Absolute ownership of real property.
FICO
The most common credit scoring model used by lenders. FICO scores can range from 350 to 900. According to this model, the higher
the score, the less likely the borrower is to default on a loan.
Fidelity
Insurance that generally covers losses caused by dishonest or fraudulent acts by
employees and others.
Fiduciary
One who acts in a capacity of trust and confidence for another.
Filing Fees
The amount charged by public officials in a specific area for recording a mortgage
and other documents.
Finance Charge
The total of all interest paid over the entire life of a loan, assuming the loan is kept to maturity.
Firm Commitment
(1) The HUD/FHA agreement to insure a loan taken out by a borrower on a specific previously approved single-family
property under specific terms. (2) For loans, a lender’s agreement to make a loan to a specific borrower under specific .terms and conditions
within a given time. (3) In the secondary mortgage market, a buyer’s agreement to purchase mortgage securities under specified terms. (4) For
multifamily housing, the HUD/FHA agreement to insure construction advances for multifamily housing projects subject to compliance with the
commitment’s terms. HUD/FHA issues a firm commitment for mortgage insurance after accepting complete, final development drawings,
including complete specifications and firm costs.
FIRREA (Financial Institution Reform, Recovery and Enforcement Act of 1989)
The law enacted to restructure the thrift industry. The Act
created regulators to oversee thrifts and established risk-based capital guidelines for Qualified Thrift Lenders (QTL). The Act created the Office
of Thrift Supervision (OTS), the Federal Housing Finance Board (FHFB) and the Resolution Trust Corporation (RTC); the Act dissolved the Federal
Home Loan Bank Board (FHLBB) and the Federal Savings and Loan Insurance Corporation (FSLIC).
First Mortgage
A real estate loan that creates a primary lien against real property; a mortgage that is in first-lien position, taking priority over
all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.
Fixed Rate
An interest rate that is fixed for the term of the loan.
Fixed-Rate Mortgage (FRM)
A mortgage in which the interest rate and payments remain the same for the life
of the loan.
Fixture
Personal property that becomes real property upon being attached to real estate.
Float
An interest rate that continues to change, or float, due to market fluctuations.
Floating Rate Loan
A loan originated without a firm commitment to the borrower thereby closing at the market rate.
Flood Plain
Those lands subject to flooding when a stream or river is at flood stage.
Flood Certification
Fee
Federal law requires flood hazard insurance if a property lies in a flood zone. This fee is to secure a determination of
the property to be in or out of a flood zone.
Floor Plan
Scale architectural drawings showing details of floor design and layout.
Forbearance
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.
Foreclosure
The legal proceeding in which a creditor sells or repossesses a parcel of real property due to the owner's failure to comply with
an agreement between the lender and borrower called a “mortgage” or “deed of trust.” The violation of the mortgage is a default in payment
of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that “the lender has foreclosed its
mortgage or lien.”
Freddie Mac (FHLMC)
An acronym for the Federal Home Loan Mortgage Corporation, a quasi-governmental secondary market organization
that offers various mortgage purchase and securitization programs. A government sponsored institution (GSI).
Frontage
The property line abutting the most important adjacent property, usually a street, lake, river or ocean.
Front Foot
One foot in length of the frontage of real property.
Functional Depreciation
In real estate, loss of value due to advancements in technology or design that make the features of the current
facility obsolete. Also called functional obsolescence.
Funding Payment of money by lenders for a mortgage loan settlement or the receipt of money by lenders from investors that purchase
mortgages.
Garnishment
A notice to an employer or other asset holder that monies, wages or property of a debtor must be applied to a specific debt of
creditor.
General Contractor
A party that performs or supervises the construction or development of a property pursuant to the terms of a primary
contract with the owner. The general contractor may use its own employees for this work or the services of other contractors
(subcontractors).
General Partner
The co-owner of a real estate venture who is liable for all debts and other obligations of the venture as well as for the
management and operation of the partnership. The general partner controls the business and can take actions that are binding on the other
partners.
GI Loan
Nickname for a mortgage loan guaranteed by the Veterans Administration.
Ginnie Mae (GNMA)
Acronym for the Government National Mortgage Association, a federal agency within the Department of Housing and
Urban Development (HUD) that guarantees the timely payment of principal and interest for mortgage-backed securities by FHA-insured,
FMHA-insured and VA- guaranteed mortgages.
Good Faith Estimate – GFE
A good faith estimate must be provided by a mortgage lender in the United States to a customer, as required by
the Real Estate Settlement Procedures Act (RESPA). The estimate is of the fees due at closing and must be provided within three business days
of applying for a loan. These mortgage fees, also called settlement costs, cover every expense associated with a home loan, including
inspections, title insurance, taxes and other charges.
Graduated Payment Mortgage (GPM)
A type of flexible payment mortgage where the payments increase for a specified period of time and
then level off. Usually results in negative amortization.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
Gross Income
Total income produced before taxes or expenses are deducted.
Ground Rent
Rent paid for land in accordance with the terms of a ground lease.
Growing Equity Mortgage (GEM)
A graduated payment mortgage in which increases in a borrower’s mortgage payments are used to
accelerate reduction of principal on the mortgage. Due to increased payments, the borrower acquires equity more rapidly and retires the debt
earlier.
Guarantee
In mortgage banking, the interest rate lock lenders offer borrowers.
Guarantor
One who makes an agreement to pay the debt or perform the obligation of another in the event the debt is not paid or obligation
not performed.
Hard Costs
Land acquisition and construction costs.
Hazard Insurance
All homeowners are required to carry Hazard Insurance (also referred to as Fire Insurance).
Hedging
A marketing strategy that reduces or transfers risk of loans from interest rate volatility.
Height Zoning
Zoning that restricts the maximum height of buildings in a specified area.
Hidden Defect
Any encumbrance in a title that is not apparent in public records. Examples of hidden defects are unknown heirs, secret
marriages, forged instruments, mental incompetence or infancy of a grantor.
Highest and Best Use
The use of land which will bring the greatest return.
High-ratio Loan
A mortgage loan that exceeds 80% of the lesser of the appraised value or purchase price of the property. This mortgage
must be insured and borrowers must pay an application fee and the insurance premium (which may be added to the mortgage) to the insurer.
Historical Cost
The original cost of constructed property.
Holdback
The portion of a loan commitment not funded until some additional requirement, such as rental or completion, is attained. In
construction or interim lending, a percentage of the contractor’ draw held back to provide additional protection for the interim lender, often
an amount equal to the contractor’s profit given over when the interim loan is closed.
Home Equity Loan
Second mortgage financing that consists of a revolving line of credit secured by the appraised market value of the home.
Usable for any purpose.
Homeowners’ Association (HOA)
An organization of homeowners residing within a particular development whose primary purpose is to
maintain and provide community facilities and services for the common enjoyment of the residents.
Homeowner’s Insurance
An insurance policy that combines protection against damage to a dwelling and its contents with protection against
claims of negligence or inappropriate action that result in someone's injury or property damage.
Homeowner’s Policy
A multiple peril insurance policy available to owners of private dwellings that covers the dwelling and its contents as
well as personal liability.
Homeowners’ Warranty Program (HOW)
An insurance program through which participating builders provide homebuyers with a warranty on
the workmanship and materials of a home and warrant against major structural defects.
Homestead Estate
In some states, a statutory exemption which prohibits the attachment or sale of owner-occupied properties to pay the
claims of creditors.
Housing Code
Standards to ensure that housing maintenance and improvements are adequate for occupancy.
Housing Starts
The number of residential units actually under construction, as distinguished from the number of construction permits issued.
The number of housing starts is a key economic indicator and is used in analyzing real estate and mortgage trends.
HUD
The Department of Housing and Urban Development. A governmental entity responsible for the implementation and administration of
housing and urban development programs. HUD as established by the Housing and Urban Development Act of 1965 to supersede the Housing
and Home Finance Agency.
Hypothecate
To pledge property as security for a debt without giving up possession or title.
Impound
The portion of a mortgagor’s monthly payment held by the lender or servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments and other items as they become due. Also called reserves or escrows.
Improved Land
Land having utilities, roads or other improvements.
Improvements
Additions to raw land that normally increase its value such as buildings, streets and sewers.
Imputed interest
Interest included in the principal amount of contracted debt if stated interest if less than the amount required by tax law.
Income and Expense Statement
The actual or estimated schedule of income and expense items reflecting net gain or loss during a specified
period.
Income Approach-to-Value The appraisal technique used to estimate real property value by capitalizing net income.
Income/Expense Ratio
A qualifying ratio used in underwriting a residential mortgage loan that computes the percentage of monthly income
required to meet the monthly housing expense.
Income Limits
Income restrictions established for low to moderate-income persons to qualify for admission into subsidized housing
programs. The limits are established by law and are based on family size and geographic location.
Income Property
Real estate developed or improved to produce income.
Index
A widely published rate such as LIBOR, T-bill or COFI. Lenders use these indexes to establish the interest rates charged on mortgage
loans. Most lenders generally tie ARM interest rate changes to an index. For ARMs, a predetermined margin is added to the index to compute
the interest rate adjustment.
Ingress and Egress
The right to enter and exit land.
Initial Cap
A consumer safeguard that limits the amount that the interest rate on an adjustable-rate
mortgage can change during the first adjustment period.
Initial Rate
The rate charged during the first interval of an ARM loan.
Inspection Certificate
A document verifying that a property is as described. The inspection is usually performed by a designated agent and
may be accepted in place of a survey.
Installment
The periodic payment that a borrower agrees to pay a mortgage lender.
Installment Sale
A sale in which a seller receives payment in regular intervals allowing the tax
on the profit from the sale to be paid over time.
Insurable Depreciation
A loss in the value of improvements that is not economically feasible to correct.
Insured Closing Letter
A document issued by a title insurance company which protects a mortgagee against embezzlement or failure to
follow specified closing instructions.
Insured Loan
A loan insured by FMHA, FHA or a private mortgage insurance company.
Interest
Charge by a lender for the use of money. Also, a right, share or title in property.
Interest Rate
The rate of interest on a loan, expressed as a percentage of 100.
Interim Financing
Financing used from the beginning of a project to the closing of a permanent loan. Usually a construction or development
loan.
Intestate
To die leaving no valid will.
Inventory In the secondary market, refers to loans closed, but not yet sold to an investor.
Investor
Any person/institution investing in mortgages or mortgage-backed securities.
Inter Vivos
Latin meaning "during life." Used to describe a gift made during a person’s lifetime (as opposed to a bequest in a will) or a trust.
Involuntary Lien
A lien imposed against property without the consent of the owner. Examples include property tax liens, special
assessments, Federal income tax liens, judgment liens, mechanic’s liens and liens for materials.
Irrigation District
Quasi-political districts created under special state laws to provide for water services to property owners. These districts
have the power to tax, borrow and condemn.
Joint and Several Note
Note signed by two or more persons each of whom is liable for the full amount of
the debt.
Joint Liability
The liability shared among two or more people, each of whom is liable for the full debt.
Joint Stock Company
In some states, a form of general partnership with some of the features of a corporation. Stockholders are legally liable
for the debts of the company.
Joint Tenancy
A form of co-ownership of property giving each person equal interest in the property, including rights of survivorship.
Joint Venture
An association formed for specific purpose and duration between two or more parties to own and/or develop real estate. A
joint venture may take a variety of legal forms including partnership, tenancy in common or corporation.
Jointly Owned Property Property held in the name of more than one person.
Judgment
Final determination by a court of the rights and claims of the parties to an action.
Judgment Lien
Lien upon the property of a debtor resulting from a decree of the court.
Judicial Foreclosure
Type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the
auspices of a court.
Jumbo Loan
A mortgage with an amount that is larger than the limits set by Fannie Mae and Freddie Mac; a non conforming loan.
Junior Mortgage
A mortgage that is subordinate to the claims of a prior lien or mortgage.
Just Compensation
Amount of loss for which property owner is compensated when the property is taken by the government. The amount is
usually fair market value at the time of the taking.
Kickback
A payment to a third party in return for the referral of a client, customer or business. Sometimes illegal and always unethical, a
kickback is different from a commission or a finder’s fee because the party that is being referred is unaware of the payment.
Labor and Material Release
Written evidence from a contractor or supplier of material surrendering the right
to place a lien.
Land Acquisition Loan
A loan made for the purpose of purchasing land only, not improvements on or to the land. Also called an acquisition
loan.
Land Contract
Agreements to transfer title to a property once conditions of the contract have been fulfilled.
Land-Use Zone
Areas where local government zoning ordinances dictate permitted land use.
Landlord
Owner or lessor of real property.
Landmark
In land surveys, any conspicuous object that helps establish land boundaries.
Land Sales Contract
A personal sales contract between a buyer and seller for the purchase of a home
or property. Title is usually not transferred to the buyer until the contract is
paid in full. This may also be known as a Contract for Deed.
Late Charge
Penalty paid by a borrower when a payment is made after the due date.
Lease
A written document containing the conditions under which the possession and use
of
real and/or personal property are given by the
owner to another for a stated period and consideration.
Lease-Purchase
A method of acquiring ownership of real estate through gradual payments under which a lease is substituted for a mortgage
obligation. Also referred to as a lease with option to purchase.
Leaseback
See: Sale-Leaseback.
Leasehold
An estate or interest in real property held by virtue of a lease.
Leasehold Mortgage
A loan to a lessee secured by a leasehold interest in a property.
Legal Description
A legal description of a property is the location of that property referenced by government surveys and approved
recorded maps. This information must be provided on the Uniform Residential Loan Application (1003). You can find this (Legal Description) on
a Metro scan of the property or a Property Profile. Legal descriptions are generally written as:
The North Half of Lot 5, Block 10, in the Adams Addition.
All properties with a legal description usually have a parcel number for reference purposes.
Lender
The institution that provides the funds when a mortgage loan is made. Lenders typically have warehouse lines (lines of credit) to
fund loans before they are sold to the secondary source. Brokers typically do not have warehouse lines and therefore cannot fund loans.
Lender Processing Fee
A fee that covers the cost of analyzing a loan application and compiling and packaging the necessary supporting
documentation to close a loan.
Leniency Clause
A provision in a promissory note that allows for loan payments to be adjusted temporarily if the borrower, through no fault
of his/her own, is experiencing extreme financial problems.
Lessee
The Lessee is the person who rents or pays for the lease on a property.
Lessor
The Lessor is the person who owns and rents (leases) a property and receives payment for the lease.
Letter of Credit
A letter authorizing a person or company to draw on a bank or stating that the bank will honor their credit up to the stated
amount.
Letter of Intent
A formal letter stating that a buyer or developer is interested in a property. The
letter creates no legal obligation.
Liability Insurance
Insurance covering the risks related to the property and personal liability claims of other parties against the insured party.
LIBOR
London lnterbank Offered Rate. The rate at which banks in the foreign market lend dollars to one another. A common interest rate
index, one of the most valid barometers of the international cost of money.
Lien
A legal claim by one person on the property of another for security for payment
of a debt.
Lien Waiver
A waiver of mechanic’s lien rights. A document signed by a supplier or subcontractor stating that the firm has been compensated
for its work thereby giving up its right to file a claim against the property.
Life Estate
A freehold estate terminated upon the death of the beneficiary giving a beneficiary all property rights except the right to sell.
Lifetime Cap
Maximum interest rate that can be charged during the life of the loan. This value is often expressed as an increment above the
initial loan rate. For example, an adjustable rate loan with an initial rate of 7.25% and a 6% lifetime cap will never adjust above a rate of 13.25%
(7.25+6.0).
Limited Partnership
A form of business ownership that consist of one or more general partners who are fully liable and one or more limited
partners who are liable only for the amount of their investment.
Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount or a certain time to a
specific borrower.
Liquidity
The ability to readily convert assets or investments to cash.
Lis Pen Dens
A notice recorded in the official records of a county to indicate that there is
a pending suit affecting land within the jurisdiction.
Listing
A written authorization for an agent to sell or lease real estate.
Littoral Rights
Rights concerning the use or enjoyment of properties abutting an ocean or fake rather than a river or stream (riparian rights).
Loan Application
An initial statement of personal and financial information required to apply for a loan. Also known as 1003.
Loan Guaranty Certificate (LGC)
A VA document that states the portion of a loan that is guaranteed. Most investors accept a guaranty of
least 25 percent.
Loan Origination Fee
A fee charged by a lender to cover the administrative costs of processing a loan.
Loan Originator
A person who, for a commission or fee, takes the borrower’s application and finds the best loan program to fit the
borrower’s needs. Also known as a loan officer, loan agent, loan solicitor and salesperson. The loan officer plays an important role in the loan
process. The loan officer can work as an independent contractor for or as an employee of a mortgage broker or lender. Loan officers may or
may not need to be licensed, depending on state laws. Either way, their role is primarily the same. They work hand in hand with Realtors,
builders, lenders and the borrowers themselves. Due to the accessibility of most to the Internet, call centers are being established so loan
officers can receive their leads electronically. The main duties and responsibilities include, but are not limited to, taking a complete and
accurate loan application, qualifying the potential borrower with a suitable loan program and lender, obtaining all necessary documentation,
and working with processors, underwriters, title, escrow, and lenders to ensure that the loan process goes smoothly and closes on time with
few or no surprises.
Loan Servicer
A company that works with the customer after the loan closes to provide customer service by collecting mortgage payments
and to provide an escrow account if necessary. If an escrow account is established, the servicer pays the property taxes and insurance
payments.
Loan Submission
A package of pertinent papers and documents regarding a specific property or properties delivered to an underwriter or a
prospective lender to obtain financing.
Loan-to-Value Ratio
The ratio of the amount of a loan to the value or selling price of the subject property. The ratio is expressed as a
percentage.
Local Housing Authority
A city agency that monitors and implements programs to satisfy communityhousing development needs.
Lock
A lender’s guarantee of an interest rate for a set period of time-usually the
time between the loan application approval and the loan closing.
Lock-In Period
The period of time during which a lender guarantees a borrower a specific interest
rate on a mortgage.
Long-Term Financing
A mortgage or deed of trust with a term of ten years or more.
Loss Coverage
Mortgage reserves maintained by mortgage insurers sufficient to cover catastrophic losses.
Loss Draft
Insurance payments in settlement of a claim to someone other than the insured who
holds an insurable interest in the insured property.
Loss Payable Clause
An insurance policy provision for payment of a claim to someone other than the insured
that holds an insurable interest in the insured property.
Lot
A measured parcel of lands having fixed boundaries as shown on the recorded plat.
Manufactured Home
A factory-assembled residence built in units or sections that are transported to a permanent site and erected on a
foundation.
Margin
The percentage difference (spread) between the index for a particular loan and the interest rate charged. This is a number
predetermined by the lender.
Market Approach-to-Value
In appraisals, a market value estimate of property based on actual prices paid in similar market transactions.
Market Rent
The price a tenant pays a landlord for the use and occupancy of real property based on current prices for comparable property.
Market Study
The projection of demand for a specific type of property or project obtained by analyzing data on sales volume, rents,
vacancies, turnover, consumer preferences and real estate prices in the surrounding area for similar properties.
Market Value
The highest price that a buyer would pay and the lowest price that a seller would accept, neither one being compelled to buy
or sell.
Marketable Title
A title that may not be completely clear, but has only minor objections that a well-informed and prudent buyer of real estate
would accept.
Master Deed
The basic condominium document that must be registered by the originating property owner prior to conveyance of the first
unit sold. The master deed thoroughly describes the entire condominium entity, including, each unit and all common areas and specific
essential elements of ownership that permanently govern its operation. Also called the condominium declaration.
Master Mortgage
A standard form mortgage recorded in the public record to help reduce recording fees, as mortgage documents thereafter
refer to the record and the master mortgage or the printed language to be incorporated into them.
Material Bond
A document evidencing that materials needed to complete construction work will be provided by the supplier who posts the
bond to the contractor as beneficiary.
Maturity
The date on which an agreement expires, termination of a mortgage note.
Maximum Loan Amount
Highest loan dollar amount allowed under federal or conventional guidelines.
Mechanic’s Lien
A claim created by law to secure priority of payment for work performed and materials provided by a vendor. Land may be
attached as well as buildings, equipment or other property.
Member Appraisal Institute (MAI)
The highest professional designation awarded by the American Institute of Real Estate Appraisers.
Merchantable Title
A title that a court of equity considers so clear that it will force acceptance of it by a purchaser. Also referred to as a
marketable title.
Metes and Bounds
A description of a parcel of land in a deed in which the boundaries are defined by directions and distances.
Minimum Lot Zoning
A type of zoning that specifies the smallest lot size permitted per building.
Minimum Property Standards
Regulations or guidelines used as underwriting criteria that set forth acceptable property standards and
specifications.
MI
See Mortgage Insurance.
MICA
Mortgage Insurance Companies of America. A national trade association for mortgage insurers, located in Washington, D.C.
MIP
See Mortgage Insurance Premium.
Mixed-Use Property
Mixed-use property refers to property that has a combination of residential and commercial use. An example of this may
be a retail store where the storeowners live on the second floor above the retail store.
Mobile Home
A factory-assembled residence consisting of one or more modules, in which a chassis and wheels are an integral part of the
structure, and can be readied for occupancy without removing the chassis and/or wheels.
Modular Home
A factory-assembled residence built in units or sections, transported to permanent site and erected on a foundation.
Excludes mobile homes.
Monument of Survey
Visible marks or indications placed on objects to indicate the lines and boundaries of a survey.
Mortgage
A formal document executed by an owner of property pledging that property as security for payment of a debt or performance of
some other obligation. Also, the security instrument itself.
Mortgage-Backed Security (MBS)
An investment instrument backed by mortgage loans as security. Ownership is evidence by an undivided
interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay off the securities and provides a return
on investment.
Mortgage Banker
A firm that conducts mortgage lending activities from its own funds. Newly formed mortgages are sold to investors in the
secondary market providing funds for subsequent lending. The mortgage banker may or may not continue to service the loans.
Mortgage Broker
A person or company that arranges mortgage loans through a mortgage banker or lender (also known as a wholesale
banker or lender). The broker establishes a relationship with a banker or lender and acts as the intermediary between the borrower and the
banker or lender. Typically, the broker has a relationship with more than one banker or lender, allowing the broker to shop the loan in order
to find the best rate and term available to suit the borrower’s needs. The broker does not fund loans (or lend money). Profolio Home
Mortgage for all practical purposes is a Mortgage Broker.
Mortgage Commitment
An agreement between lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type,
term and amount.
Mortgage Discount
The percentage difference between lender and borrower detailing the terms
of a mortgage and the selling price.
Mortgage Equity Analysis
The difference between fair market value of a property and the amount of outstanding mortgage indebtedness.
Mortgage Insurance (MI)
Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows the
lenders to make loans with lower down payments. The federal government offers Ml through HUD/FHA; private entities offer Ml for
conventional loans.
Mortgage Insurance Certificate (MIC)
Certificate issued by HUD/FHA as evidence that a mortgage has been insured, and that a contract of
mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations identified in the certificate.
Mortgage Note
A written promise to pay a sum of money at a stated interest rate during a specified
term. A mortgage note is secured by a mortgage.
Mortgage Pool
A group of mortgage loans with similar characteristics that are combined to form mortgage-backed securities.
Mortgage Portfolio
The aggregate of mortgage loans held by an investor or serviced by a mortgage banker.
Mortgagee
The lender in a mortgage transaction.
Mortgagee Clause
A clause that may be attached to an insurance policy stipulating that the lender
will receive a portion of insurance proceeds sufficient to satisfy the unpaid amount
of a loan in the event of a loss.
Mortgagee in Possession
A mortgagee who, due to default under the terms of a mortgage, has obtained possession
but not ownership of the property.
Mortgagor
The borrower in a mortgage transaction who pledges property as a security for a debt.
Mother Hubbard Clause
A provision in a mortgage that allows the lender, in the event of a default, to foreclose not only that mortgage, but
also any other mortgages that may have been executed by the borrower and which are held by the lender.
Multifamily Housing
A building with more than four residential units.
Multiple Listing Service (MLS)
A service provided by the Board of Realtors which renders access to real estate listings of properties for sale
or lease.
Mutual Mortgage Insurance Fund (MMIF)
A FHA insurance fund into which all mortgage insurance premiums and other specified revenue are
deposited and from which losses are paid.
Negative Amortization
Negative amortization occurs on a loan when the monthly mortgage payment (P&I) is not enough to pay for all the
interest due at that time on a loan. When this happens, the unpaid interest is then added to the outstanding balance of the loan. As a result,
the homeowner can end up owing more than the original amount of the loan. Because of this, most lenders limit the amount of negative
amortization to 115% of the CLTV.
Negative Cash Flow
The deficit that is created when expenditures required to maintain an investment exceed income received on the
property.
Negotiable Instrument
Under the Uniform Commercial Code, an instrument that meets certain legal requirements and that can be transferred
by endorsement or delivery.
Net Income
The difference between effective gross income and expenses, including taxes and insurance, but not debt service.
Net Operating Income (NOI)
The amount remaining after all total operating expenses (excluding interest payments) are deducted from
effective gross income.
Net Worth
The value of all assets, including cash, less total liabilities. Often used as an underwriting guideline to indicate creditworthiness
and financial strength.
Non assumption Clause
A prohibition of the assumption of a mortgage by a third party without the prior approval of the lender.
No-Bid
The Veterans Administration exercises this option to pay the lender the amount of the guaranty on a delinquent VA loan and leave
the lender with title to the property. VA must exercise this option when it is in the government’s best interest. In a no-bid situation, VA will
not specify the amount to be bid at the foreclosure sale and the lender does not have the right to transfer the property to VA. No-bid loans
become real estate owned until disposed of or resolved by the lender.
Non conforming Mortgage
A mortgage loan in which the loan amount, the loan-to-value ratio, the term or some other aspect of the loan
exceeds permissible limits as specified in regulations.
Non disturbance Agreement
An agreement that permits a tenant under a lease to remain in possession despite any foreclosure.
Non recourse Loan
A type of mortgage loan in which the lender’s remedies in the event of the borrower’s default are limited to foreclosing
the mortgage. The borrower is not personally liable.
Note
A general term for any kinds of paper or document signed by a borrower that is an acknowledgment of the debt, and is, by inference, a
promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee.
Notice of Completion
Notice recorded after completion of construction. Mechanic’s liens must be filed within a specific period of time
thereafter.
Notice of Default
Notice recorded after default under a deed of trust or mortgage. Also, notice required by an interested third party (such as
FHA, VA or a private mortgage insurance company) that has insured or guaranteed a loan.
Notice of Quit
An eviction notice.
Novation
The substitution of a new contract or obligation between the same parties or different parties. Also, the substitution by mutual
agreement, of one debtor for another or one creditor for another, whereby the existing debt is extinguished.
Obsolescence
Loss of value through reduced usefulness resulting from outmoded physical features, technological advances or economic
influences.
Occupancy Rate
The percentage of space or units that are leased or occupied.
Offsite Improvements
Improvements outside the boundaries of a property that enhance its value such as sidewalks, streets, curbs and
gutters.
Onsite Improvements
Any construction of buildings or other improvements within the boundaries of a property
that increases its value.
Open-End Mortgage
A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender
and the borrower.
Ordinary Income • Income subject to tax at full or ordinary rate rather than at capital gains rates.
Origination
The process of originating mortgages. Solicitation may be from borrowers, builders or brokers.
Origination Fee
The lender’s fee charged in connection with a loan. Usually stated as a percentage
of the face value of the loan. On FHA loans, the origination fee is calculated on
the base loan amount.
Originator
Person who solicits builders, brokers and others to obtain applications for mortgage loans. Origination is the process by which a
mortgage banker or direct lender brings into being a mortgage secured by real property.
Out lot
A lot that does not secure a mortgage but is adjacent to or part of the security.
Over Improvement
An improvement inappropriate to a site due to its excess size or cost or inadequate return.
Over Zoned
Zoning that exceeds the present highest and best use for land.
Par
A price of 100 percent or the price at which the principal equals the sales price. It is the price of a mortgage without a discount charged.
Partial Payment
In loan collection, less than the full payment amount usually not credited until the balance is received.
Partnership
A business association of two or more owners who share in the profits and losses of the business. Partners are jointly and
severally liable for the debts of the enterprise. A creditor suing for collection may sue partners as a group. However, any one partner is liable
for the whole of the debt.
Party Wall
A wall built on a line between two adjoining properties and used by both owners.
Patent
In real estate, the original document issued for the purpose of granting public land to an individual.
Percolation Test
A test given to soil to determine its ability to absorb liquid for either septic tank or construction purposes.
Per Diem Interest
Interest calculated per day. Depending on the day of the month on which the closing takes place, interest will have to be
paid from the date of the closing to the end of the month. The first mortgage payment will be due the first day of the following month.
Perfecting Title
The elimination of claims against title.
Performance Bond
A bond to guarantee performance of specified acts such as the completion of construction of a property or offsite
improvements.
Permanent Financing
A mortgage loan, usually covering development costs, interim loans, construction loans, financing expenses and
marketing, administration, legal and other costs. This loan differs from the construction loan in that financing goes into place after the project
is constructed and open for occupancy. It is a long-term obligation, generally for a period often years or more.
Personal Property
Any property that is not real property. State laws vary on the definition of personal property.
Physical Approach-to-Value
An appraisal method whereby property value is derived by estimating the replacement cost of improvements,
less estimated depreciation, plus the estimated land value on market data. Synonymous with cost approach.
Physical Depreciation
Decline in the value of a physical asset of real property resulting from normal usage, age, wear and tear, disintegration
or action of the elements. Depreciation can be curable or incurable.
Piggyback Financing
Two different mortgagors participating in the same loan.
Pipeline
Loan applications that a lender holds until they are closed.
PITI
An acronym that stands for principal, interest, taxes, and insurance – the components of a monthly mortgage payment.
PITI Ratio
The principal, interest, tax and insurance payment to income ratio. Used in mortgage lending decisions.
Planned Unit Development (PUD)
A comprehensive development plan for a large land area. A PUD usually includes residences, roads,
schools, recreational facilities, commercial office and industrial areas. Also, a subdivision having lots or areas owned in common and reserved
for the use of some or all of the owners of the separately owned lots.
Planning Commission
A local or regional organization, normally a government agency, responsible for the preparation and adoption of
comprehensive long-term general plans for the physical development of property within its jurisdiction.
Plans and Specifications
Architectural engineering drawings and specifications for construction of a building or project. They include a
description of materials to be used and the manner in which they are to be applied.
Plat
A map representing a piece of land subdivided into lots with streets, boundaries, easements and dimensions shown thereon.
Plat Book A book showing the lots and legal descriptions of the subdivisions of an area usually recorded and kept in the office of the city or
county.
Points
An up-front fee paid to the lender. Each point equals 1% of the total loan amount. Loan discount points are a one-time charge
assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.
Pool
A collection of mortgage loans grouped by one or more similar characteristics.
Power of Attorney
A legal document that authorizes one person to act on behalf of another.
Power of Sale
A provision in a deed of trust that empowers a trustee, without any judicial procedures, to sell property in event of default by
the mortgagor and to apply the proceeds of the sale to satisl5t’ the obligation, the costs of invoking the procedure and the expenses of the
sale.
Pre-approval
The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrower prior to
application for a loan. A preapproval includes a preliminary screening of a borrower’s credit history.
Predatory Lending
Refers to an issues resulting in possible violation of RESPA.
Preferred Debt
Any obligation that has precedence over others as in a senior or first mortgage.
Preliminary Title Report
A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title
insurance policy is issued.
Premises A defined portion of land and the improvements thereon as described in a deed, deed of trust or mortgage.
Prepaid Expenses
Taxes, insurance, and assessments paid in advance of their due dates. These expenses are included at closing.
Prepaid Interest
Interest that is paid in advance of when it is due. Prepaid interest is
typically charged to a borrower at closing to cover interest on the loan between
the closing date and the first payment date.
Prepayment
The payment of all or a portion, of mortgage debt before it is due.
Prepayment Penalty
A fee that is charged if the loan is paid off earlier than the specified term of the loan. The amount of prepayment
penalty depends on the loan program and applicable state laws. Some states do not allow a prepayment penalty.
Pricing
Relates to mortgage programs and their interest rates.
Primary Financing
A loan secured by a first mortgage or deed of trust on real property.
Prime Rate
The interest rate commercial banks charge their most creditworthy customers for short-term loans. The prime is a yardstick for
trends in interest rates, and it is often a base for higher-risk loans.
Principal
The original balance of money lent excluding interest. Also, the remaining balance of a loan excluding interest.
Priority
The order of precedence of claims against property or assets. Priority is usually established by filing or recordation but may be
established by statue or agreement.
Prior-to-Doc Conditions (PTD)
Conditions that must be satisfied before the lender sends the final closing documents to the closing agent,
closing company, attorney or title company.
Prior-to-Funding Conditions (PTF)
Once the borrowers have signed the closing documents, Prior-to-Funding conditions are those conditions
that must be satisfied before the lender will wire the loan funds to the closing agent.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance is designed to protect the lender in the event that the borrower of the subject
property defaults on the loan. In conforming loans, it is generally required on loans when the LTV is above 80%.
Processor
A person working with the loan originator who gathers information provided by the originator, applicable to the loan file, and
submits the loan for a decision to the lender. The processor gathers information needed to meet all conditions requested by the lender in
order to fund the loan.
Processing
The preparation of a mortgage loan application and supporting documents for consideration
by a lender or insurer.
Pro Forma Statement
A financial or accounting statement using estimates and assumptions to project income and the performance of real
property over a period of time.
Promissory Note
A written promise to pay a specific amount at a specified time and place.
Proof of Loss
An affidavit or claim form signed by the insured and submitted to the insurer as a claim for an insured loss sustained.
Property Residual
A technique for estimating the value of property as a whole when neither the value
of the land nor the building can be estimated by itself.
Pro Rota
The allocation of proportionate shares of income, ownership or of an obligation. For example, a pro rats share of taxes and
insurance premiums, paid or due, divided between seller and buyer at closing or an investor’s pro rats share of income from investment in a
mortgage-backed security.
Public Report
A subdivision report normally issued by a state agency before the sale of lots in the subdivision. The report is a factual
description of the subdivided property with emphasis on what might be considered its shortcomings. It is not issued until the agency is
satisfied that the subdivider has put in place promised improvements and facilities or has made satisfactory financial arrangements to assure
their completion, and back any warranties or representations.
Public Trustee
A person appointed or required by law to execute and administer a trust.
Purchase Agreement
A written proposal by a buyer to purchase real estate that becomes binding upon the acceptance of the seller.
Quality Control
Policies and procedures designed to maintain optimal levels of accuracy and efficiency in the production, selling and servicing
of mortgage loans.
Quiet Title Action
Legal action taken to eliminate any interest on a claim to property by others; the procedure used to perfect title when a
quitclaim deed is unobtainable.
Quitclaim Deed
A deed relinquishing all interest, title or claim in a property by a grantor. A quitclaim does not imply that the grantor has good
title and in no way obligates the grantor.
Radon
An invisible, odorless gas that may enter a structure through cracks or holes in basement floors. Radon is a suspected carcinogen.
Rate Sheets
Often referred to as pricing sheets, rate sheets show the scale or range of interest rates with the rebates for each and for the
most popular loan programs that the lender offers.
Ratio Analysis
A method of underwriting that computes the proposed housing expense plus other long-term
debt expenses as a percentage of monthly income.
Raw Land
Land in its natural state having no physical improvements such as grading, sewers and structure.
Real Estate Owned (REO)
Property acquired as the result of mortgage default and subsequent foreclosure.
Real Estate Settlement Procedures Act (RESPA)
A federal statue and regulation promulgated by HUD governing real estate lending practices
and disclosure. Its main features pertain to provision of a good faith estimate of loan settlement costs and the provision of obtaining the HUD
settlement booklet within three days of making a loan application.
Real Property
An interest in land and objects permanently attached to it such as buildings and fences. A deed transfers real property from
one person to another.
Realtor® (Real-tor – not Re-la-tor)
A member of a local real estate board affiliated with the National Association of Realtors®, a Washington, D.C., trade association. A
person licensed to negotiate and transact the sale of real estate on behalf of either the borrower or the seller, and in some cases can
represent both parties.
Realty
A term for real property and the business involved in the buying and selling thereof.
Receiver
An impartial appointee by the court to administer properties involved in foreclosure or other litigation, to receive its rents and
profits and apply or dispose of them at the direction of the court.
Reconciliation
The last step in the appraisal process in which all data are compared and considered to arrive at a single final estimate of
value.
Recording
Recording is filing the new mortgage information in the Public Records – usually in the County Recorder’s office. This is handled
by the Title Insurance Company (or Attorney) that performed the closing and is generally takes place within 24 to 48 hours after loan funding.
Re-conveyance
An instrument used to transfer title from a trustee to the equitable owner of real estate. It is utilized when the performance
of debt is satisfied under the terms of a deed of trust.
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, not just to the property.
Redemption Period
The time allowed by law in some states during which a mortgagor may buy back property freed of the mortgage lien after
default. The mortgagor must pay the amount owed on the foreclosed mortgage including interest and fees.
Red Lining
The identification of historically high risk areas for real estate loans and the subsequent denial of applications from within the area
without considering individual applicant qualifications.
Refinancing
The process of paying off one loan with proceeds from a new loan secured from the
same property.
Regulation Z
Regulation written by the Federal Reserve Board to implement the Truth-in-Lending Act requiring full written disclosure of all
costs connected with the credit portion of a purchase including the annual percentage rate.
Rehabilitation
Restoration to good use of a declining property or neighborhood to bring it back to its full potential for use.
Reinstatement
The curing of all loan defaults by a borrower; the restoration of a loan to current status through payment of any payments in
arrears.
Release Clause
A stipulation in a blanket encumbrance, mortgage or deed of trust under which a portion of the security may be released
from lien if certain amounts are paid or conditions are met.
Release of Liability
An agreement by a lender to terminate the personal obligation of a mortgagor in
connection with payment of a debt.
Release of Lien
An instrument discharging secured property from a lien.
Release of Record
The act of recording a release deed or satisfaction of mortgage, to release or eliminate the lien of the mortgage on the
public record.
Remainder man
An individual entitled to the remainder of an estate after the termination of a prior estate.
Replacement Cost
The cost to replace a structure with one of equivalent value and function but not necessarily identical in design or
materials.
Replacement Reserve
A cash reserve for the future replacement of fixed assets.
Reproduction Cost
The money required to reproduce a building using the same or equivalent materials, design and construction methods,
less an allowance for depreciation. An element of the cost-approach method of appraisal.
Rescission
The cancellation or annulment of a transaction or contract by law or by mutual consent.
Residual Analysis
A method of underwriting that evaluates the adequacy of an applicant’s monthly income after the proposed housing
expense has been deducted.
Restrictive Covenant
A clause in a deed or lease that denies the buyer or lessor full rights to the property in question.
Reverse Annuity Mortgage (RAM)
Type of mortgage in which the lender makes periodic payments to the borrower using
the borrower’s equity in the home as security.
Reversion
A right to future possession retained by an owner at the time of a transfer of an owner’s interest in real property; the residue of a
fee simple remaining to a grantor.
Reversionary Clause A clause providing that any violations of restrictions will cause title to the property to revert to the party whom
imposed the restrictions.
Reserves
The lender requires that the borrower have a specific amount of reserves set aside for the loan prior to closing. The lender wants
the borrower to show enough funds saved or set aside (many times this can be Liquid Assets) for a number of months of PITI payment. If the
monthly PITI payment is $350.00, and your borrowers need to have three months PITI in reserves, they will need $1,050.00 prior to loan
closing. This is also considered a prior-to-doc condition.
Reverse Mortgage
A reverse mortgage allows a homeowner (who is at least 62 years of age) to use the equity they have built up in their
home and convert it into cash. Reverse mortgages generally guarantee what is called “life tenure” with no payments due to the lender until the
borrower moves, sells their home or becomes deceased. At that time, the outstanding loan balance (which represents all the payments made
to the homeowner of the loan plus the interest) becomes due. Reverse mortgages have limited qualifying factors.
Right of First Refusal
A right given a lessee by an owner that states that if the owner decides to sell, he/she must offer the lessee the first
opportunity to purchase the subject property before offering it to others.
Right of Rescission
Under the provisions of the Truth in Lending Act, the borrower’s right, on certain kinds of loans (e.g., a refinance on an
owner-occupied property), to cancel the loan within three days of signing a mortgage.
Right of Survivorship
The survivor’s right to the property of his/her deceased. In the case of joint tenancy or tenancy by entirety (husband
and wife), the undivided property passes to the survivor.
Right of Way
A privilege operating as an easement on land whereby a landowner, by grant or agreement, gives another the right to pass
over land. Also, a strip of land used for a street or railway.
Riparian Rights
The right of owners to the water and land within the normal flow of a river or stream or below a high water mark. These
rights vary with state laws.
Risk
The degree of uncertainty associated with doing business.
Rule of 78s
Method used by a lender (usually on installment loans) for calculating an interest rebate on a loan paid off or refinanced prior to
its maturity date or for accruing earned discount.
Sales Contract
A written agreement between buyer and seller stating terms and conditions
of an exchange of property in consideration for money.
Sale-Leaseback
A sales arrangement where a seller deeds a property to a buyer for consideration and then leases the same property from
its new owner.
Sales Price
The price which a buyer will pay a seller for the subject property.
Satisfaction of Mortgage
The recordable instrument given by the lender to evidence payment in full of the mortgage debt. Sometimes called
Release Deed.
Schematic
An architect’s sketches illustrating space planning, structural systems and structure in relationship to site plan.
Seasoned Loans
A seasoned loan refers to how long that mortgage has been in existence and how long the borrowers have made
payments on their mortgage. A seasoned loan generally means that the borrowers have made at least 12 monthly payments on their
mortgage loan.
Secondary Financing / Second Mortgage
Often referred to as a second mortgage, which is secured by a Deed of Trust on Real Property. If a
borrower has an existing first and second mortgages on his property and wishes to refinance only the first mortgage, you will need to obtain
an approved / signed subordination agreement from the lender holding the second mortgage. The reason an approved subordination
agreement from the lender holding the second mortgage is required to protect the first position of the loan you are refinancing (the existing
first mortgage). Without an approved subordination agreement, the second mortgage would then move into first position (it was recorded
prior to the recently refinanced first mortgage).
Section
A division or parcel of land on a government survey comprising one square or 640 acres.
Section 32 Loans
A mortgage loan secured by a homeowner’s primary residence whose APR exceeds ten percent more than the one year
Treasury Bill index at the origination of the loan or whose fees and charges exceed eight percent of the loan amount. Home Equity loans are
excluded from Section 32. If the loan is subject to Section 32, than the homeowner must sign a disclosure at least three days prior to
executing closing documents. Called Section 32 loans because these loans are defined in Section 226.32 of
Regulation Z.
Secured Party
A party holding a security interest or lien. Also called the mortgagee, conditional seller or pledgee.
Security
Collateral given, deposited or pledged to secure the fulfillment of an obligation or the payment of debt. Mortgage collateral is
evidenced by the mortgage note or deed of trust.
Security Interest
The interest of a creditor in the security collateralizing an investment.
Seller-Servicer
Term used by Fannie Mae and Freddie Mac for a corporation that has met the requirements necessary to sell and service
mortgages for Fannie Mae and Freddie Mac.
Senior Mortgage
A first mortgage.
Servicing
The mortgage banking function that includes receiving payments, customer service, escrow administration, investor accounting and
collections and foreclosures. Synonymous with loan administration.
Servicing Agreement
A written agreement between an investor and mortgage servicer stipulating the rights
and obligations of each party.
Servicing Income
Income derived from mortgage servicing.
Servicing Released
The sale of mortgage loans after which the seller will not be responsible for performing the servicing function.
Service Retained
The sale of mortgage loans in which the seller retains servicing and is paid a fee for doing so.
Setback Lines
Lines that delineate the required distances for the location of a structure in relation to the perimeter of the property. They are
defined in building codes, deed restrictions and zoning requirements.
Settlement Company Also known as settlement agent. A company that acts as the go-between in coordinating the closing between the
buyer, seller, and lender. The settlement company usually is an escrow company or a settlement attorney, depending on the state where the
property is located. The settlement company serves as the meeting place between the related parties of the mortgage where the mortgage
documents are executed and the property ownership is transferred to the buyer on the purchase transaction. The settlement company
collects all money in the transaction and disburses the money to the proper parties.
Settlement Costs
Money paid by borrowers and sellers to effect the closing of a mortgage loan including title insurance, escrow fees,
recording fees and such prepaid items as taxes and insurance escrow payments.
Sheriff’s Deed
A deed given by a court order with the sale of property executed to satisfy a judgment
or tax sale.
Shipping
Preparing and sending a complete package of mortgage documents to an investor.
Site Development
All improvements made to a site before the actual construction of a building such as clearing, grading and the installation
of public utilities.
Site Value
The worth of land without improvements as if vacant.
Special Assessment District
Any governmental subdivision having the power to tax and improve property within its jurisdiction. Also called a
special improvement district.
Special Warranty Deed
A deed containing a covenant whereby the grantor agrees to protect the grantee against any claims arising during
the grantor’s period of ownership.
Standard Metropolitan Statistical Area (SMSA)
A central city area and its surrounding suburbs and small jurisdictions.
Standing Mortgage
A loan where no amortization payments are required and the entire loan comes due at maturity. Interest is normally paid
at periodic intervals while the loan is standing.
Starts
The number of residential housing units begun within a stated period of time.
Statue of Frauds
State laws requiring that certain contracts be in writing; contracts for the sale of real property must always be in writing.
Straw buyer
One who purchases property for another to conceal the identity of the real purchaser.
Strict Foreclosure
A type of foreclosure proceeding used in some states in which title to the foreclosed
property is vested directly in the mortgagee by court decree without holding a foreclosure
sale.
Subchapter S
Provisions of the IRS code under which certain qualifying small business corporations may elect to eliminate income tax at the
corporate level with the corporation’s income taxed directly to the shareholders.
Subcontractor
The person or company under contract to perform work for a developer of general contractor.
Subdivision
Improved or unimproved land divided into a number of parcels for the purpose of sale, lease or financing.
Subject Property
The home for which the borrower is applying for the loan.
Sublease
A lease executed by a lessee to a third person for a term no longer than the remaining
portion of the original lease.
Sub mortgage
Using one mortgage as collateral for obtaining another.
Subordination Agreements
An agreement by which an encumbrance is made subject (junior) to another encumbrance.
Subrogation
The substitution of one person for another in reference to a debt, claim or right.
Subsidy
A grant to reduce the cost of one or more housing components (land, labor, material or financing) to lower the cost to the
occupant.
Substitution of Liability
The assumption of liability by another on a mortgage or trust deed note with the concurrent release of the original
maker by the mortgagee.
Sub-Surface Rights
The right to ownership of everything beneath the physical surface of land such as oil and minerals.
Surety Bond
Written evidence of a third party, called the surety, that a loan will be repaid. The surety is primarily liable for the debt in the case
of default.
Survey
A bird’s eye sketch of the property that shows the boundary lines of the lot and details of any encroachments (going over boundary
lines) between the subject property and that of the neighbors. 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 improvements.
Surveyor
A person or company that measures the boundaries of a parcel of land, including any improvements. The surveyor prepares a
report known as a survey. Most lenders require a survey of the property in a purchase transaction.
Surveyor’s Certificate
A formal statement signed, certified and dated by a surveyor giving the pertinent facts about a particular property and
any easements on encroachments affecting it.
Suspension The underwriter is stating is that they do not
have enough
information /documentation to make a final decision on the loan;
therefore, the loan is “suspended” until all necessary items have been received.
Sweat Equity Value created in a property by the performance of work or labor by the purchaser or borrower.
Takedown
The advance of money by a lender to a borrower under a loan agreement, loan commitment or line of credit.
Tax Abatement
The exemption or reduction of local taxes on a project for a specific period
of time.
Tax Basis
A taxpayer’s cost of property for tax purposes including cash paid and the principal amount of mortgage debt encumbering the
property at the time of acquisition. The property’s tax basis is increased from time to time by additional cash investment in the property and is
decreased from time to time by tax deductions (such as depreciation) relating to the property and by cash withdrawals.
Tax Deed
A deed on property purchased at public sale for nonpayment of taxes.
Tax Lien
A claim against property for the amount of its due and unpaid taxes.
Tax Sale
The sale of property by a taxing authority or an officer of the court acting on a judgment to satisfy the payment of delinquent taxes.
Tax Service Fee
Fee paid by the lender to a third party to monitor and handle the payment of the property tax bills.
Tax Shelter
A reduction of taxable income through the investment of earnings on capital; any investment that postpones or avoids tax
payments.
Tenancy
The holding of real estate under any kind of right or title.
Tenancy by Entirety
A type of joint ownership of property by a husband and wife where both are viewed as one person under common law
and that provides for the right of survivorship.
Tenancy in Common
A type of ownership created when real or personal property is granted to two or more persons without express words
creating a joint tenancy. There is no right of survivorship.
Tenancy in Partnership
A type of ownership whereby real property is held in the name of the partnership
rather than in the name of individual partners.
Tenant
One who is not the owner but occupies real property under consent of the owner and in subordination to the owner’s title. The
tenant is entitled to exclusive possession, use and enjoyment of the property, usually for a rent specified in the lease.
Term
The period of time between the commencement date and termination date of a note, mortgage, legal document or other contract.
Term Mortgage
A mortgage in which, for a specified period of time, only interest is paid, after which the principal is due.
Testate
The state or condition of leaving a will at death.
Third Party Providers
Types of individuals or companies that provide professional services relating to a home loan. Examples of these are:
appraisers, title companies for the title report, home inspectors for home inspections, and credit reporting agencies for the credit report.
Time is of the Essence
The inclusion of this phrase in a contract means that performance within a specified period of time is an essential
element of the transaction.
Title
Written evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title
deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase,
inheritance, devise, gift or through foreclosure or a mortgage. Individuals who will have legal ownership in the property are considered “on
title” and will sign the mortgage and other documentation.
Title Binder
Written evidence of temporary title insurance coverage that runs for a limited time and must be replaced by a permanent policy.
Title Defect
Any legal right held by others to claim property or to make demands upon an owner.
Title Exception
An exception appearing in a title insurance policy against which the insurance company does not insure.
Title Insurance Policy Insurance that protects a lender against any title dispute or loss that may arise over a particular property. Owner’s title
insurance protects the owner for the same reason.
Title Insurance Premium
In order to determine that a property is properly owned and not subject to any unacceptable liens, lenders require
both a search of the local real estate records and a title insurance policy insuring the lender against any defects in title. The title insurance
premium covers the cost of the search and the insurance. The cost of title insurance varies both by state and by county.
Title Search
An examination of public records, laws and court decisions to ensure that no one except the seller has a valid claim to the
property and to disclose past and current facts regarding ownership of the subject property.
Torrens Certificate
A certificate issued by a public authority called a registrar of titles establishing title in an indicated owner. Used when title
to property is registered under the Torrens system of land registration.
Townhouse
A row house or condominium on a small lot which has coincidental exterior limits with other similar units. Title to the unit and its
lot is vested in the individual buyer with a fractional interest in common areas, if any.
Tract
A parcel of land.
Trade Lines
The different credit accounts listed on a borrower’s credit report.
Transfer Fees
Fees collected from the buyer or seller of a property to defray the cost of a transfer of records.
Transfer Tax
Taxes on the conveyance of real estate imposed by state and local governments.
TransUnion One of the three largest credit bureaus in the
United States.
Transmittal Summary (1008)
Usually referred to as the 1008 (pronounced as the “Ten Oh 8”). Like the 1003, the number is located at the
lower right-hand corner of the form. The 1008 summarizes all important features regarding the loan, and it enables the lender’s underwriter to
get the main points of the loan at a glance. When you (or your loan processor) submit a loan to a lender, you will usually include a 1008.
Trust
A fiduciary relationship whereby legal title to a property is transferred to a trustee with the intention that such property be
administered by the trustee for the benefit of another, the beneficiary, who holds equitable title to such property.
Trust Deed
The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee as security for the borrower’s
fulfillment of an obligation. A mortgage.
Trustee
One who holds legal title to property for the benefit of another or for the purpose of securing performance of an obligation.
Trustee in Bankruptcy
An agent of the court authorized to liquidate the assets of the bankrupt, protect the assets and bring them to court
for final distribution for the benefit of the bankrupt and creditors.
Truth-in-Lending Act
Part of the Consumer Credit Protection Act, an important federal law that requires disclosure of credit terms using a
standard format. The Truth-In-Lending Act, referred to as TILA, was first enacted by Congress in 1968. One of the requirements of this act is to
provide the customer(s) with the Annual Percentage Rate (APR) on their loan, as well as other important features of their loan. This APR is
calculated using the interest rate on your GFE and considers certain identified loan costs, which are referred to as the finance charge of the
loan. The law is intended to ensure that borrowers are given meaningful and accurate information regarding the cost of credit and to help
them compare terms between competing financial institutions.
Turnkey Project
One in which a builder, contractor or developer contracts to construct and deliver a completed facility that includes all items
necessary for occupancy and operation.
Underwriter
An individual who works for the lender and reviews the loan file for the purpose of making a decision on the loan. The
underwriter is responsible for reviewing a loan application and determining whether to make a loan based on credit, income, debt, appraised
value of the house, and other factors. An underwriter is responsible for evaluating the loan to determine the risk involved for the lender.
Many loans are also underwritten via automated systems such as Freddie Mac LP (Loan Prospector) and Fannie Mae DU (Desktop Underwriter).
Brokers also use Fannie Mae DO (Desktop Originator).
Underwriting
In mortgage banking, the analysis and subsequent assumption of risk involved in making a mortgage loan. Underwriting
involves analysis of the property as revealed in an appraisal report and the borrower’s ability and probable willingness to repay the loan. Risk
may also be affected by other factors such as loan-to-value ratios and the presence or absence of mortgage insurance.
Unencumbered Property
A property that is free and clear of debts or liens.
Uniform Commercial Code (UCC)
A comprehensive code of laws regulating important legal aspects of business and financial transactions. The
code has been accepted by every state except Louisiana.
Uniform Residential Loan Application – 1003
The first step in the official loan approval process; this form is used to record important
information about the potential borrower necessary to the underwriting process.
Unimproved Land
Raw land.
Up front Mortgage insurance Premium (UFMIP)
The amount paid by a mortgagor for mortgage insurance to FHA. This is paid to HUD within 15
days of loan closing.
Usury
Charging borrowers a rate of interest greater than that permitted by law.
Usury Ceiling
A maximum legal rate established by state law for interest, discounts or other fees that may be charged for the use of money.
The ceiling may vary depending on the nature or type of the loan. The ceiling also varies by state.
VA
See Veterans Administration.
VA Funding Fee (VAFF)
A fee charged by the VA to guarantee a mortgage loan.
Vacancy Factor
A percentage loss from gross rental income due to vacancy and collection losses.
Value
Value is defined as the lesser of: (I) the appraised value of the mortgaged premises at the time the mortgage loan is closed (for a more
complete discussion of appraised value, see the Appraisal Section of this manual); or (2) the purchase price paid for the mortgaged premises
by the borrower.
Variance
An approved special change in construction codes, zoning requirements or other property
use restrictions.
Vendee
The party to whom personal or real property is sold.
Vendor
The seller of personal or real property.
Vendor’s Lien
An unpaid seller’s right to a lien on property until the purchase price is recovered.
Verification of Deposit (VOD) – A document signed by the borrower’s bank or other financial institution verifying the borrower’s account
balance and history.
Verification of Employment (VOE)
A document signed by the borrower’s employer verifying the borrower’s position, length of time of
employment and salary.
Verification of Mortgage (VOM) or Rent (VOR)
A document used to verify the mortgage or rent history of a borrower.
Vested Interest
A legal claim or right to the present or future enjoyment of real property.
Veterans Administration
A department of the federal government created as an agency in 1930. The Servicemen’s Readjustment Act of 1944
authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life.
Among the benefit programs is the VA Home Loan Guaranty Program designed to encourage mortgage lenders to offer long-term, low-down
payment financing to eligible veterans by guaranteeing the lender against loss.
Voluntary Conveyance
An elective transfer of title to a real estate security on a defaulted mortgage from borrower to lender, as an
alternative to foreclosure, and the borrower receives credit for payment in full.
Waiver of Lien • The written evidence from a contractor or supplier
of material surrendering the right of lien to enforce collection of debt against
a property.
Warehouse
Loans that are funded and awaiting sale to an investor.
Warehousing
The short-term borrowing of funds by a mortgage banker using permanent mortgage loans as collateral. This form of interim
financing is used until the mortgages are sold to a permanent investor.
Wholesale Lender
A lender that works only with mortgage brokers. Wholesale lenders accept completed loan packages and underwrite
them. They offer discounted pricing to mortgage brokers in return for the up-front work done by the mortgage broker.
Yield
In real estate, the effective annual return on investment expressed as a percentage of the price originally paid.
Yield Spread Premium
Yield spread premium, interest-rate rebate, or back-end income of a loan. According to HUD, yield spread premium is
also referred to as indirect compensation by a lender.
Zoning
Zoning describes the type of allowable building use of a property in a specified area. This is usually decided upon by the city or
county authorities where the subject property is located.
