No glossary terms for these letters.
Plat PITI PITI Reserves Planned Unit Development (PUD) Point Power of Attorney Pre-Approval Prepayment Penalty Pre-Qualification Principal Private Mortgage Insurance (PMI) Purchase and Sales Agreement
No glossary terms for these letters.
A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.
ARM (Adjustable Rate Mortgage)
A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.
Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of a fixed period or term, no money will be owed.
The amount financed is your mortgage amount MINUS the prepaid finance charges. Prepaid finance charges include a loan origination fee, commitment fees (points), interest adjustments, and initial mortgage insurance premiums (if applicable). The amount financed is a net figure used to allow you to accurately assess the amount of credit actually given. This amount is used in determining the APR for the Truth-in-Lending Disclosure. IT IS NOT YOUR ACTUAL LOAN AMOUNT
APR (Annual Percentage Rate)
The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.
The part of the closing costs prepaid to the lender at the time of application to cover initial expenses.
A written analysis of the estimated value of a property prepared by a qualified appraiser. The primary purpose of the appraisal is to determine value and marketability of the property. The appraiser will also look for any necessary repair items, however, you should not construe this as being a home inspection. The appraiser is not a qualified inspector and does not cover the detail an inspector would.
The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called assessment.
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).
Assumption of Mortgage
The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.
A financial statement that shows assets, liabilities, and net worth as of a specific date.
The transfer of personal property through a will.
A preliminary agreement secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate. Also related to the acquisition of homeowners insurance, a binder is an agreement to purchase an insurance contract.
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed rate mortgage, and they are usually drafted from the borrowers bank account. The result for the borrower is a substantial savings in interest.
The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years of the whole term.
- Money used to create income, either as an investment in a business or an income property.
- The money or property comprising the wealth owned or used by a person or business enterprise.
- The accumulated wealth of a person or business.
- The net worth of a business represented by the amount by which its assets exceed liabilities.
Certificate of Title
A statement that shows ownership of property, stating that the seller has clear legal title.
Chain of Title
The history of all the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called 'settlement costs'.
A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account.
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as "loan commitment".
Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.
Ownership of a single unit in a multi unit building or complex of buildings. Along with this goes a share of ownership of the common areas.
The terms and conditions of any major renovation job should be part of a formal, legally binding contract between you and your contractor. This is called the construction contract. The lender you choose will most likely want to review the contract before you sign it.
A condition that must be met for a contract or commitment to remain binding.
The three main credit reporting agencies, or credit bureaus, are Equifax, Experian, and Trans Union. You can order a copy of your credit report (a nominal fee may apply) via telephone at:
- Equifax 800.685.1111
- Trans Union 800.916.8800
- Experian 800.682.7654
Your credit score is based on all the information in your credit report. This information is converted into a number—a credit score—that the lender uses to determine whether you are likely to repay your loan in a timely manner. The scores used in mortgage lending are typically in the 300 to 900 range. A general guide is that the higher your score the better. However, you should keep in mind that your credit score is just one of several factors that will be used to evaluate your mortgage loan application.
An amount owed to another.
The legal document conveying title to a property
The deed is the document that transfers ownership from the seller to you. Only the seller signs the deed at closing, and you’ll receive a copy of it.
The closing agent will record the deed with you listed as the new property owner. Your name and the names of any other buyers appear on the deed, and it will be sent to you after it is recorded..
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Failure to make mortgage payments when mortgage payments are due.
Discount points are often used to describe a type of fee that lenders charge. Discount points are additional funds that you pay to the lender at closing to get a lower interest rate on your mortgage.
A point equals 1 percent of the loan amount. So, if you and your lender agree to a mortgage of $100,000, one point would equal $1,000.
Typically, each point you pay for a 30-year loan lowers your interest rate by .125 of a percentage point. If the current interest rate on a 30-year mortgage is 7.75 % paying one point would lower the interest rate to 7.625 %.
Ask your lender if you have the option of paying 1, 2, or 3 discount points—or you can choose not to pay any discount points. It often makes more sense to pay discount points if you plan to stay in your home for a long time.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage. Saving for a down payment is usually one of the most difficult parts of preparing to buy a home. If you believe you have the needed funds, you are in a better position to see pre-qualification from a lender to get the mortgage that is right for you.
Most homeowners rely on a mortgage from a financial institution, and most mortgage products require buyers to include a portion of their own funds toward the purchase of the home. This is called the down payment. Lenders feel more secure when the buyers include a down payment, indicating they are less likely to walk away from their investment if their finances take a downturn.
Historically, buyers made a down payment that totaled 20 percent of the home’s purchase price. Under this scenario, a down payment for $100,000 home is $20,000. Today, new mortgage products allow buyers to put down as little as 3-5 percent provided private mortgage insurance is obtained. The down payment for a $100,000 home with 5 percent down payment is just $5,000.
Sources for a down payment may come from buyer’s savings accounts and checking accounts, stocks and bonds, life insurance policies, and gifts.
Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
The earnest money deposit is a “good-faith” payment you submit with your offer on a home to show the seller you are serious about proceeding.
The earnest money is deposited in an escrow account and will be applied to your closing costs.
Sometimes, your lender will want you to bring a receipt for the earnest money deposit along with your sales contract to the initial loan application meeting.
A right of way giving persons other than the owner access to or over a property.
Equal Credit Opportunity Act (ECOA)
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, martial 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.
A lender determines how much equity you have in your home by taking the appraised value of the home and subtracting any mortgage debt.
Funds and/or deed left in trust to a third party. Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay for taxes, hazard insurance and yearly mortgage insurance premiums.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
A mortgage that has a primary lien against a property.
An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.
Good Faith Estimate
The good-faith estimate is a report from your lender that outlines the costs you will incur to get your mortgage. It is based on the lender's typical loan origination costs for the area where your home is located. The estimate usually changes between application and closing, so you’ll want to review your settlement form before the closing meeting.
The settlement form will list the actual amount of money you’ll need to bring to closing. You’ll need to pay your closing costs in the form of a certified or cashier’s check as personal checks are generally not accepted.
Normal income including overtime and prior to any payroll deductions that is regular and dependable. This income may come from more than one source.
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.
The home inspection reviews the structural and mechanical condition of the property. This is not an evaluation of the market value of the home or a determination of whether the home complies with applicable building and safety codes. The inspection does not include a recommendation on whether you should or should not buy the house.
The inspector bases the findings on observable structural elements of the home. Potential home buyers are urged to be present during the inspection—this will allow you to ask questions and be in a better position to learn more about any problems that arise.
You should expect to see an evaluation of:
- Roof and siding
- Windows and doors
- Heating and cooling systems
- Plumbing and electrical systems
- Walls, floors, and ceilings
- And any common areas if you are purchasing a condominium or cooperative
You should view the home inspection report as a way to identify problems before you buy the home, to help negotiate adjustments in the purchase price if problems exist, and to help get the buyer to make any needed improvements before you buy the home.
Lastly—and for some buyers most importantly—the home inspection report is a way to make you feel confident that the home you are buying includes systems that are in good working condition.
Homeowner’s Warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
Housing Expense Ratio
The percentage of gross monthly income that goes toward paying housing expenses.
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet".
The HUD-1 Settlement Statement itemizes the amounts to be paid by the buyer and the seller at closing. The (blank) form is published by the U.S. Department of Housing and Urban Development (HUD).
Items on the statement include:
- Real estate commissions
- Loan fees
- Points, and
- Escrow amounts
The form is filled out by your closing agent and must be signed by the buyer and the seller. The buyer should be allowed to review the HUD-1 Settlement Statement on the business day before the closing meeting to know the closing costs in advance.
Real Estate developed or improved to produce income.
The fee charged for borrowing money.
Simply put, this is the fee that is charged for borrowing money from lenders.
The interest rate is the rate of interest that is in effect when the monthly payment is due. An interest rate ceiling—for an adjustable-rate mortgage (ARM)—is the maximum interest rate, as specified in the mortgage note; the interest rate floor is the minimum interest rate, as specified in the mortgage note.
A property that is not occupied by the owner.
A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
A legal claim against a property that must be paid off when the property is sold.
A cash asset or an asset that is easily converted into cash.
Loan-to-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.
Homes and dwellings that are not built at the home site and are moved to the location are considered manufactured housing. Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation. All manufactured homes must be built to meet standards set forth by the U.S. Department of Housing and Urban Development (HUD). The standards focus on such aspects as design, strength, energy efficiency, and fire resistance.
Manufactured housing represents one of the fastest-growing housing markets in the United States. Nearly all of the mortgage products are available for owners of manufactured housing.
You can get a good feel for the market value of a home by asking whether the listing agent compiled a "comparative market analysis" (CMA). This written report on the property examines comparable homes in the area that have recently been sold, are currently on the market, or are currently under contract.
The CMA will help you figure out whether the asking price is in line with other comparable houses in the neighborhood.
A legal document that pledges a property to the lender as a security for payment of a debt.
Simply put, the mortgage is the legal document that gives the lender a legal claim against your house should you default on your loan payments. The mortgage indicates that a specific amount of money will be loaned at a specific interest rate so that you can buy your home. Another way of thinking of the mortgage is that you have possession of the property but the lender has ownership until you have repaid your loan.
The items stated in the mortgage include the homeowner’s responsibility to:
- Pay principal
- Pay interest
- Pay taxes
- Pay insurance on time
- Pay to maintain hazard insurance on the property, and
- Adequately maintain the property
The mortgage also includes the basic information found in the note.
Should you consistently fail to meet these requirements; your lender can seek full repayment of the balance of the loan, foreclosure on the property, or sell the property and use the proceeds to pay off the loan balance and foreclosure costs.
A deed of trust is used instead of a mortgage in some states.
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.
The borrower in a mortgage agreement.
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.
The value of all a person’s assets, including cash, minus all liabilities.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
One way to think of the mortgage note is that it is a legal "IOU". Often called the promissory note, it represents your promise to pay the lender according to the agreed upon terms of the loan, including when and where to send your payment.
The note lists any penalties that will be assessed if you don’t make your monthly mortgage payments. It also warns you that the lender can "call" the loan—demand repayment of the entire loan before the end of the term—if you violate the terms of your mortgage.
The interest rate stated on a mortgage note.
When you make an offer on a house, it means you are making a formal bid to buy a home. You can work with your real estate sales professional to put together a written bid that abides by the laws in your state. Your offer should include such aspects as the address of the home, the sales price, the type of the mortgage financing you will use to purchase the home, any personal property that might be included as part of the sale, and a target date for closing and occupancy. An earnest money deposit typically accompanies the offer. Your real estate sales professional can provide guidance on other elements of the offer.
Once you have made an offer, the seller has the opportunity to accept, decline, or make a counter-offer. If your offer is accepted, you have a ratified sales contract. This contact is the starting point for working with an approved lender to get the mortgage that’s right for you.
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount. For example, a $100,000 mortgage with a loan origination fee of 1 point would mean you pay $1,000.
A property purchase transaction in which the property seller provides all or part of the financing.
A map or a piece of land showing boundary lines, streets, actual measurements and easements.
Principal, interests, taxes and insurance (PITI) are the four components of a monthly mortgage payment.
The four components of a monthly mortgage payment:
- 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 hazard insurance
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 project or subdivision that includes common property that is owned and maintained by a homeowner’s association for the benefit and use of the individual PUD unit owners.
A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage. See discount point and origination point.
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 a certain acts and/or certain periods of time.
When you work with your lender to get pre-approved, you are getting an indication of how much money you will be eligible to borrow when you apply for a mortgage. This process occurs before you complete an application for a loan.
Pre-approval includes a screening of a borrower’s credit history, and all information you give to your lender will be verified when you apply for your mortgage.
A charge paid to the lender by the borrower if a mortgage loan is repaid before the term is over.
The process of determining how much money a prospective home buyer will be eligible to borrower before he or she applies for a loan.
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance (PMI)
Also known as Mortgage Insurance, PMI is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Purchase and Sales Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which property will be sold.
The Purchase and Sales Agreement is a written contract that is signed by the buyer and seller. It states the terms and conditions under which a property will be sold. It includes:
- Description of property
- Price offered
- Down payment
- Earnest money deposit
- Personal items to be included
- Closing date
- Occupancy date
- Length of time the offer is valid
- Special contingencies
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense and a percent of income ratio.
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time.
A real estate broker or sales associate affiliated with the National Association of Realtors.
The charges made by the register of deeds to record legal documents.
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.
Right of First Refusal
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
Right of Ingress or Egress
The right to enter or leave designated premises.
A loan issued on a property that is already encumbered by an existing mortgage (i.e.: the first mortgage). The second mortgage is subordinate to the first.
Secondary Mortgage Market
The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.
A loan that is backed by collateral.
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.
The final step before you get the keys to your home is a formal meeting called the closing. It is at this meeting in which ownership of the home is transferred from the seller to the buyer.
Also called a settlement in some parts of the country, the meeting is typically attended by the buyer(s), the seller(s), and their attorneys if they have them, both real estate sales professionals, a representative of the lender, and the closing agent. The purpose is to make sure the property is physically and legally ready to be transferred to you.
Several closing costs will be paid at this meeting. These expenses are over and above the price of the property and are incurred when ownership of a property is transferred. Closing costs generally include a loan origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance, and a survey. Closing costs vary according to the area of the country.
When working with an approved lender who uses Desktop Underwriter—our advanced automated underwriting system—a number of costs associated with your closing may be reduced, including mortgage insurance, appraisal fees, and credit report fees.
The HUD-1 Settlement Statement itemizes the amounts to be paid by the borrower and the seller at closing. The (blank) form is published by the U.S. Department of Housing and Urban Development (HUD).
Items on the statement include:
- Real estate commissions, --loan fees
- Points, and
- Escrow amounts
The form is filed out by your closing agent and must be signed by the buyer and the seller. The buyer should be allowed to review the HUD-1 Settlement Statement on the business day before the closing meeting to know the closing costs in advance.
Any mortgage or other liens that have a priority that is lower than that of the first mortgage.
A map prepared by an engineer or surveyor charting a particular piece of real estate.
Taxes and Insurance
You'll hear many terms as you work with your mortgage lender, and one of the most frequently mentioned is "PITI". This abbreviation stands for principal, interest, taxes and insurance.
The tax and insurance components of a mortgage payment are generally held by the lender in an escrow account. The lender pays any property tax and homeowner’s insurance bills as they are due, ensuring they are paid on time.
A homebuyer’s monthly mortgage payment generally covers expenses through the escrow account. If you don’t have your homeowner's insurance and property taxes paid out of a lender escrow account, your local government and your property insurance company will send payment notices directly to you. It is your responsibility to make sure you pay these bill on time.
If you're planning to purchase a condominium or cooperative, talk to your lender about how they view condo and co-op fees. Most likely, they are considered housing costs and not part of the PITI. However, this can vary from lender to lender.
Tenancy by the Entirety
A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.
Tenancy in Common
A type of joint tenancy of property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy.
Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on the title refers to any outstanding liens or encumbrances which could impair the title.
Insurance that protects the lender (lender's policy) and/or the buyer (owner's policy) against loss arising from the disputes over ownership of a property.
Your lender will require that you buy the title insurance to ensure that you are receiving a "marketable title". There are two types of title insurance policies:
- Lender's policy (mandatory): This protects the lender should a flaw in the title be detected after the property has been purchased.
- Owner's policy (optional, but recommended): This protects you should a flaw in the title be detected after the property has been purchased.
Generally, the buyer pays the cost of both policies. Check with your insurer, because you may receive a price break if you seek a combined lender/owner policy or if you purchase a "reissue" policy from the company that previously insured the title.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding against the property.
In order to make sure the borrower will receive clear title to the property, lenders require a title search. This search attempts to uncover any "encumbrances" on the title and makes sure the seller is the actual owner of the property.
Encumbrances include any liens—legal claims against a property filed by creditors as means to collect unpaid bills. Liens can also be filed by the Internal Revenue Service for nonpayment of taxes. Any such claims must be paid by the seller—this often occurs either before or at the closing.
Total Expense Ratio
Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.
A townhouse is similar to a condominium in that it's a type of joint real estate where each housing unit is individually owned. However, it has two or more stories, rather than the typical one floor found in a condominium.
Townhouses are available in many shapes and sizes, and most have yards or common spaces that can be used by the owners.
In some areas, transfer taxes are city, county, or state taxes imposed when a property passes from one person to another.
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. Your lender should provide you with the Truth-in-Lending (TIL) Statement within three business days of your loan application. This document outlines the costs of your loan, and it is given to you so you can compare the costs with those of other lenders. Among the costs listed:
- The annual percentage rate (APR), which is the cost of your mortgage compiled as a yearly rate. It may be higher that the interest rate stated in your mortgage because it includes points and other costs of credit.
- The finance charge
- The amount financed
- The payment amount
- The total payments required
The lender is required to give you the final version of your TIL Statement at or prior to the closing meeting because it is possible that the APR calculated at your loan application will change at closing.
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
A loan that is not backed by collateral.