Understanding real estate terminology can be of great assistance in buying or selling a home, commercial property, or investment property. In order to help you understand words commonly used in a real estate transaction, I have prepared a list of real estate terms you should become familiar with. Thanks again and be sure to contact me for any of your Green Valley real estate needs or real estate needs for Sahuarita, Tubac, Amado, or anywhere in Pima & Santa Cruz County, Arizona.
Terms:
acceleration clause
A clause in the mortgage which allows the lender to demand payment of the outstanding loan balance. This is most commonly used if a borrower defaults on the loan or transfers title to another individual without informing the lender.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.
The date the interest rate changes on an adjustable-rate mortgage.
The loan payment consists of an amount, a portion of which will be applied to the principal and a portion of which will be applied to the interest owed, with the principal balance being gradually reduced as more and more of each payment is allocated to principal over the term of a note
amortization schedule
A table which shows the allocation of each payment toward interest and principal over the life of the loan.
This is the effective interest rate that the borrower actually pays on a loan, taking into account one-time fees and costs charged at the time of the loan. This is not the advertised or note rate on your loan. The disclosure of the actual APR is required so that the consumer will know the true cost of the credit and make it easy to compare lenders and loan options.
A written estimate of the fair market value of a property (appraised value), prepared by an appraiser, primarily based on comparable sales of similar homes in the neighboring area. Some appraisers may be employed by mortgage lenders, but most are independent.
Any increase in the value of a property.
ARM
The mortgage interest rate may be raised or lowered at periodic intervals according to the prevailing interest rates in the marketplace. .
as-is
This term suggests that the buyer accepts the property from the seller in its present state and relinquishes any liability for the seller.
assessed value
The valuation placed on property by a public tax assessor for purposes of taxation. This is not a market value.
The act of valuation of property for the purpose of taxation.
The elected public official who establishes the value of a property for purposes of taxation.
When ownership of a mortgage is transferred from one company or individual to another, it is called an assignment. Rights in real property can also be assigned or transferred.
An existing mortgage that can be assumed by the buyer. The borrower must usually "qualify" or meet the requirements of a lender in order to assume the loan.
A term applied when the buyer assumes the seller's mortgage.
A type of mortgage loan that requires any remaining principal balance be paid at a specific point in time. The amortization rate might be for 15, 25 or 30 years, but any remaining principal balance would be due in a lump sum payment at the end of a designated time period, i.e. 5 or 10 years.
The final lump sum payment that is due at the end of the designated time period of a balloon mortgage.
Bid
To offer (a price) whether for payment or acceptance.
bill of sale
A written document that transfers title to personal property.
biweekly mortgage
A mortgage with payments being scheduled every two weeks instead of once a month, with the result that the equivalent of thirteen monthly payments are made instead of twelve. This has the effect of reducing the principal owed on the loan more quickly.
A bridge loan is made when a buyer wants to purchase a property but has not yet sold the property he currently owns. The bridge loan will supply the money needed to buy the new property and is repaid when the old property is sold.
This word has several meanings. Most Realtors® are "agents" who work under a "broker." Some agents are brokers as well, either working for themselves or under another broker. In the mortgage industry, a broker usually refers to a company or individual that does not personally make the loans but act as agents for larger lenders or investors. These loans are typically “sold off” after the sale is closed. In general, a broker is anyone acting as an agent to bring two or more parties together for a business transaction and earns a fee for this service.
This is a top rate which may be charged on an Adjustable Rate Mortgage. The loan may not be adjusted over this cap. It may also refer to how much a payment may be adjusted during a stated period.
A borrower may refinance his mortgage at a higher amount than the current loan balance for the purpose of obtaining cash.
A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.
Certificate of Reasonable Value (CRV)
This is a document issued by the Veterans Administratin when the appraisal has been performed on a property being purchased with a VA loan.
A description of the transfers and transactions pertaining to a piece of real estate. Chain of title must be researched before a policy of title insurance can be issued.
A title to property that is free of liens or legal questions as to ownership.
This may not be the same in every state. In some places, a real estate transaction is not considered “closed” until the documents are recorded at the Recorder’s office. In others, “closing” takes place when all the documents are signed and the money changes hands. In
Closing costs are itemized for the buyer and seller as one-time charges or fees and pre-paid items. "Non-recurring closing costs" are one-time charges for obtaining a loan or transferring title. "Pre-paid items" consist of recurring costs, such as property taxes or homeowners’ insurance. The lender must provide an estimate to the buyer of these costs and issue a “Good Faith estimate” within three days of the loan application.
See Settlement Statement.
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
An additional individual who is both obligated on the loan and is on title to the property.
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
When a borrower falls behind in his payments, the lender contacts him in an effort to bring the loan current. If this is unsuccessful, the loan goes to "collection" and the lender will follow the legal procedures necessary to eventually foreclose on the property.
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including real estate agents, loan officers, title representatives, attorneys, escrow officers, pest inspectors, home warranty companies, home inspection companies, insurance agents, and more. The fees and commissions are paid from the funds of the seller or buyer in the transaction.
common area assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
An unwritten body of law based on general custom in
In some states, especially
comparable sales
Recent sales of similar properties in nearby areas that are used to determine the fair market value of a property. Also referred to as "comps."
A type of ownership in real property where all of the owners own the property, common areas and buildings in common, with the exception of the interior of the unit to which they have title.
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
A condominium project with rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is being operated as a commercial hotel even though the units are individually owned. These are often found in resort areas.
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
A condition that must be met before a contract is legally binding. Home buyers often include a contingency that the contract is not binding until a property in another location is sold, or that the buyer obtains a satisfactory home inspection report from a qualified home inspector or that the buyer is able to obtain financing on satisfactory terms.
An oral or written agreement to do or not to do a certain thing. In
Refers to any home loan other than VA or FHA (government) loan.
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
A record of an individual's repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.
An estimate of the amount of credit that can be extended to a company or person without undue risk.
A report of an individual's credit history prepared by a credit bureau and used by a lender to determine the loan applicant's creditworthiness.
An organization that gathers, records, updates, and stores financial and public information about the credit history of individuals.
credit union
A cooperative organization that makes loans to its members at low interest rates.
creditor
A person to whom money is owed.
An amount owed to another.
The legal document conveying title to a property.
Some states, like
Failure to make a mortgage payment within a specified period of time.
delinquency
Failure to make mortgage payments when mortgage payments on or before the due date. When a loan payment is more than 30 days late, most lenders will report the late payment to one or more credit bureaus.
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an "earnest money deposit."
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income.
Discount points refer to any "points" paid in addition to a 1% loan origination fee. A "point" is one percent of the loan amount.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
A provision in a mortgage that allows the lender to demand full repayment of a loan in full if the borrower sells the property that serves as security for the mortgage.
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
A right-of-way granting persons other than the owner access to or over a property. Utility companies receive easements to the property to provide services.
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
An improvement that intrudes illegally on another's property.
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit
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.
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
After the close of a sale, the buyer may have an escrow account or impound account with the lender. The monthly payment might include extra moneys for the purpose of paying property taxes and homeowners’ insurance policies when they become due and payable. The lender holds this extra money in an escrow account and pays these recurring costs on behalf of the borrower.
A lender will perform an "escrow analysis" once a year to make sure they are collecting enough money for the anticipated expenditures.
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
The legal expulsion of an occupant from real property.
An abstract or report on the chain of title on a property from the public records. This may be prepared by a title company or by a lawyer.
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
executor, executrix
A person named in a will to administer an estate. If there is no will or one is not named in the will, the court will appoint an administrator to manage the affairs of the estate.
A consumer protection law that regulates the disclosure of consumer credit reports by reporting agencies and establishes procedures for correcting mistakes on a credit record.
The highest price that a willing buyer, being under no compulsion to buy, would pay, and a willing seller, being under no compulsion to sell, would accept.
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
The most common way real estate is owned in law and the most complete ownership interest possible. This is absolute ownership, only limited by taxation, eminent domain, police power and escheat, all by government action.
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
A lender's agreement to make a loan to a specific borrower on a specific property.
The mortgage that is in first place among any loans recorded against a property.
A mortgage in which the interest rate does not change during the entire term of the loan.
Personal property that becomes real property when attached in a permanent manner to real estate. A light fixture is an example.
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are non-profit organizations.
Some administrators of 401(k)/403(b) plans allow for loans against the monies accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
Insurance to provide financial relief from physical damage to a property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, this type of mortgage allows the borrower to receive regular payments from a lender instead of a lump sum. It enables older home owners to convert the equity they have in their homes into cash. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of the home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.
A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of the home, up to a predetermined amount.
home equity loan
A loan or credit line that is secured by the equity the borrower has in a home.
home inspection
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
home loan
Money lent at interest, for the purpose of buying a home.
A non-profit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
A document that provides an itemized listing of the funds to be paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet."
interest rate
The percentage usually on an annual basis that is paid for the use of money borrowed from anotherhe creditor) on a loan.
A form of ownership or taking title to property which means each party is co-owner of the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the creditor.
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.
A loan that exceeds Fannie Mae's and Freddie Mac's loan limits, currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
An alternative financing option that allows home buyers to lease a home with an option to buy. Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.
A property description, recognized by law, serving to locate and identify the property.
An individual or institution making a loan.
Financial obligations owed to others, including long-term and short-term debt, as well as any other amounts that are owed to others.
Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner's insurance policy.
A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.
For an adjustable-rate mortgage (ARM), a limit on the amount that the enterest rate can increase or decrease over the life of the mortgage.
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
Also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.
How a lender refers to the process of obtaining new loans.
After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).
An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.
The time period during which the lender has guaranteed an interest rate to a borrower.
MLS-IDX
Multiple Listing Service-Internet Data Exchange. A sharing among brokers of listing information and allowing disseminatin of that information over the internet.
The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.
market value
An asset's market value is the price attained in the market if it were sold in the current marketplace.
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
A credit report which reports the raw data pulled from two or more of the major credit repositories.
Occasionally, a lender will agree to modify the terms of a mortgage without requiring a refinance. If any changes are made, it is called a modification.
A legal document that temporarily and conditionally pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.
A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae.
A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
The lender in a mortgage agreement.
Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage Insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves "No MI" are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.
mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
mortgage life and disability insurance
A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability. Be careful to read the terms of coverage, however, because often the coverage does not start immediately upon the disability, but after a specified period, sometime forty-five days.
The borrower in a mortgage agreement.
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.
A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a "rate and term refinance."
Many lenders offer loans that you can obtain at "no cost." You should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
The interest rate stated on a mortgage note.
Almost all lenders offer loans at "no points." You will find the interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
The total amount of principal owed on a mortgage before any payments are made.
On a government loan, the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.
A property purchase transaction in which the property seller provides all or part of the financing.
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.
For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Any property that is not real property.
This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
planned unit development (PUD)
A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.
A point is 1 percent of the amount of the mortgage.
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
A fee that may be charged to a borrower who pays off a loan before it is due.
This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
private mortgage insurance (MI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
A written promise to repay a specified amount over a specified period of time.
A tax levied on real or personal property.
public auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
The acquisition of property through the payment of money or its equivalent.
partial payment
A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.
payment change date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
periodic payment cap
For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.
periodic rate cap
For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
personal property
Any property that is not real property.
PITI
This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
PITI reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
planned unit development (PUD)
A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.
point
A point is 1 percent of the amount of the mortgage.
power of attorney
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
pre-approval
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
prepayment penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
pre-qualification
This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
prime rate
The interest rate charged by banks to preferred customers. Changes in the prime rate are used as indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
principal balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
private mortgage insurance (MI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
promissory note
A written promise to repay a specified amount over a specified period of time.
public auction
A meeting in an announced public location to sell property to repay a mortgage that is in default.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.
purchase agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
purchase money transaction
The acquisition of property through the payment of money or its equivalent.
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
A person licensed to negotiate and transact the sale or purchase of real estate.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "
The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
The process of paying off one loan with the proceeds from a new loan using the same property as security.
The amount of principal that has not yet been repaid. See principal balance.
The original amortization term minus the number of payments that have been applied.
An arrangement made to repay delinquent installments or advances.
A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
The right to enter or leave designated premises.
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
A mortgage that has a lien position subordinate to the first mortgage.
The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
See HUD1 Settlement Statement
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgage it plans to deliver to the secondary mortgage market.
A legal document evidencing a person's right to, interest in, or ownership of a property.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims to the property.
Any means by which ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.
State or local tax payable when title passes from one owner to another.
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.