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203(b):
-
FHA's
single family program which provides mortgage insurance
to lenders to protect against the borrower defaulting;
203(b) is used to finance the purchase of new or
existing one to four family housing; 203(b) insured
loans are known for requiring a low down payment,
flexible qualifying guidelines, limited fees, and a
limit on maximum loan amount..
203(k):
-
This
FHA mortgage insurance program enables homebuyers to
finance both the purchase of a house and the cost of its
rehabilitation through a single mortgage loan.
30 Year
Fixed
-
The interest rate
for this loan will stay the same for the entire term of
the loan. The term for this loan is 30 years. Payments
are calculated so that you make a monthly payment for 30
years (360 payments total) and pay the loan off in full
at the end of that 30-year period.
3/1
Interest-Only ARM
-
The interest
rate for this loan will stay the same for the first
3 years. The term for this loan is 30 years. The
interest rate for the first 3 years is generally
less than a 5/1 ARM. At the end of the first 5 years
this loan will automatically adjust to an adjustable
rate mortgage. Usually the adjustable rate mortgage
is a one-year Treasury Arm. The interest rate for
this loan will adjust once per year. The first
adjustment may be larger than the remaining
adjustments. You should check to see if this loan
has a cap on the maximum it would adjust at the
first adjustment. The loan should also have a cap
for the maximum percentage it can adjust during the
term of the entire loan. Be sure and calculate your
payment based on the total maximum payment your loan
could ever reach. That way you will know if you can
make the payment without any financial difficulty.
3-in-1
Credit Report
-
Also called
a merged credit report, this type of report includes
your credit data from TransUnion, Equifax and
Experian in a side-by-side format for easy
comparison.
80-10-10
Loan
-
A
combination of an 80% loan-to-value first mortgage,
a 10% home equity loan and a 10% down payment. The
loans can be used to eliminate the need for private
mortgage insurance.
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Letter A
"A" Loan or "A" Paper
- A credit rating where the FICO score is 660 or above.
There have been no late mortgage payments within a
12-month period. This is the best credit rating to have
when entering into a new loan.
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ARM
-
Adjustable Rate Mortgage; a mortgage loan subject to
changes in interest rates; when rates change, ARM
monthly payments increase or decrease at intervals
determined by the lender; the change in monthly payment
amount, however, is usually subject to a cap.
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Abstract of Title
-
Documents recording the ownership of
property throughout time.
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Acceleration
-
The right of the lender to demand payment
on the outstanding balance of a loan.
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Acceptance
- The written approval of the buyer's offer by
the seller.
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Additional Principal Payment
- Money paid to the lender
in addition to the established payment amount used
directly against the loan principal to shorten the
length of the loan.
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Adjustable-Rate Mortgage (ARM)
- A
mortgage loan that
does not have a fixed interest rate. During the life of
the loan the interest rate will change based on the
index rate. Also referred to as adjustable mortgage
loans (AMLs) or variable-rate mortgages (VRMs).
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Adjustment Date
-
The actual date that the interest rate
is changed for an ARM.
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Adjustment Index
-
The published market index used to
calculate the interest rate of an ARM at the time of
origination or adjustment.
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Adjustment Interval
-
The time between the interest rate
change and the monthly payment for an ARM. The interval
is usually every one, three or five years depending on
the index.
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Affidavit
-
A signed, sworn statement made by the buyer
or seller regarding the truth of information provided.
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Amenity
-
A feature of the home or property that serves
as a benefit to the buyer but that is not necessary to
its use; may be natural (like location, woods, water) or
man-made (like a swimming pool or garden).
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American Society of Home Inspector
- The American
Society of Home Inspectors is a professional association
of independent home inspectors. Phone: (800) 743-2744
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Amortization
-
A payment plan that enables you to reduce
your debt gradually through monthly payments. The
payments may be principal and interest, or
interest-only. The monthly amount is based on the
schedule for the entire term or length of the loan.
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Annual Mortgagor Statement
-
Yearly statement to
borrowers detailing the remaining principal and amounts
paid for taxes and interest.
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Annual Percentage Rate (APR)
-
A measure of the cost of
credit, expressed as a yearly rate. It includes interest
as well as other charges. Because all lenders, by
federal law, follow the same rules to ensure the
accuracy of the annual percentage rate, it provides
consumers with a good basis for comparing the cost of
loans, including mortgage plans. APR is a higher rate
than the simple interest of the mortgage.
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Application
-
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.
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Application Fee
-
A fee charged by lenders to process a
loan application.
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Appraisal
-
A document from a professional that gives an
estimate of a property's fair market value based on the
sales of comparable homes in the area and the features
of a property; an appraisal is generally required by a
lender before loan approval to ensure that the mortgage
loan amount is not more than the value of the property.
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Appraisal Fee
- Fee charged by an appraiser to estimate
the market value of a property.
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Appraised Value
-
An estimation of the current market
value of a property.
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Appraiser
- A
qualified individual who uses his or her
experience and knowledge to prepare the appraisal
estimate.
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Appreciation
-
An increase in property value.
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Arbitration
-
A legal method of resolving a dispute
without going to court.
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As-is Condition
-
The purchase or sale of a property in
its existing condition without repairs.
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Asking
Price
- A
seller's stated price for a property.
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Assessed
Value
-
The value that a public official has
placed on any asset (used to determine taxes).
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Assessments
-
The method of placing value on an asset for
taxation purposes.
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Assessor
-
A government official who is responsible for
determining the value of a property for the purpose of
taxation.
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Assets
-
Any item with measurable value.
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Assumable Mortgage
- When a home is sold, the seller may
be able to transfer the mortgage to the new buyer. This
means the mortgage is assumable. Lenders generally
require a credit review of the new borrower and may
charge a fee for the assumption. Some mortgages contain
a due-on-sale clause, which means that the mortgage may
not be transferable to a new buyer. Instead, the lender
may make you pay the entire balance that is due when you
sell the home. An assumable mortgage can help you
attract buyers if you sell your home.
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Assumption Clause
- A
provision in the terms of a loan
that allows the buyer to take legal responsibility for
the mortgage from the seller.
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Automated Underwriting
-
Loan processing completed
through a computer-based system that evaluates past
credit history to determine if a loan should be
approved. This system removes the possibility of
personal bias against the buyer.
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Average Price
-
Determining the cost of a home by
totaling the cost of all houses sold in one area and
dividing by the number of homes sold.
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"B" Loan or "B" Paper
-
FICO scores from 620 - 659.
Factors include two 30 day late mortgage payments and
two to three 30 day late installment loan payments in
the last 12 months. No delinquencies over 60 days are
allowed. Should be two to four years since a bankruptcy.
Also referred to as Sub-Prime.
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Back End Ratio (debt ratio)
-
A ratio that compares the
total of all monthly debt payments (mortgage, real
estate taxes and insurance, car loans, and other
consumer loans) to gross monthly income.
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Back to Back Escrow
-
Arrangements that an owner makes to
oversee the sale of one property and the purchase of
another at the same time.
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Balance
Sheet
-
A financial statement that shows the
assets, liabilities and net worth of an individual or
company.
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Balloon Loan or Mortgage
-
A mortgage that typically
offers low rates for an initial period of time (usually
5, 7, or 10) years; after that time period elapses, the
balance is due or is refinanced by the borrower.
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Balloon Payment
-
The final lump sum payment due at the
end of a balloon mortgage.
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Bankruptcy
-
A federal law whereby a person's assets are
turned over to a trustee and used to pay off outstanding
debts; this usually occurs when someone owes more than
they have the ability to repay.
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Chapter 7 Bankruptcy:
A type of consumer bankruptcy where your
responsibility for your debts is cleared entirely.
With this kind of bankruptcy you are not required to
pay back debts you owe from before your filing.
Chapter 7 bankruptcy filing records remain on your
credit report for 10 years and the record of each
account included in your filing will remain on your
report for 7 years. This has been the most common
type of filing but changes to bankruptcy law will
make it more difficult to file for Chapter 7
bankruptcy in the future.
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Chapter 11 Bankruptcy:
A complex type of bankruptcy usually filed by
businesses that wish to restructure their debts.
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Chapter 12 Bankruptcy:
A type of bankruptcy specifically for farmers and
fishermen. Similar to Chapter 13 bankruptcy but with
a few special benefits.
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Chapter 13 Bankruptcy:
A type of bankruptcy where the consumer must pay off
some of their debts over time. Chapter 13 bankruptcy
filing records remain on your credit report for 7
years from the discharge date or 10 years from the
filing date if it is not discharged. Each account
included in the filing will remain on your report
for 7 years.
Chapter
15 Bankruptcy:
A type of bankruptcy
specifically
dealing with cases of cross-border insolvency.
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Biweekly Payment Mortgage
-
A mortgage paid twice a month
instead of once a month, reducing the amount of interest
to be paid on the loan.
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Borrower
-
A person who has been approved to receive a
loan and is then obligated to repay it and any
additional fees according to the loan terms.
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Bridge Loan
-
A short-term loan paid back relatively
fast. Normally used until a long-term loan can be
processed.
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Broker
-
A licensed individual or firm that charges a fee
to serve as the mediator between the buyer and seller.
Mortgage brokers are individuals in the business of
arranging funding or negotiating contracts for a client,
but who does not loan the money. A real estate broker is
someone who helps find a house.
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Building Code
-
Based on agreed upon safety standards
within a specific area, a building code is a regulation
that determines the design, construction, and materials
used in building.
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Budget
-
A detailed record of all income earned and spent
during a specific period of time.
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Buy Down
-
The seller pays an amount to the lender so the
lender provides a lower rate and lower payments many
times for an ARM. The seller may increase the sales
price to cover the cost of the buy down.
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"C" Loan or "C" Paper
-
FICO scores typically from
580 to 619. Factors include three to four 30 day late
mortgage payments and four to six 30 day late
installment loan payments or two to four 60 day late
payments. Should be one to two years since bankruptcy.
Also referred to as Sub - Prime.
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Callable Debt
-
A debt security whose issuer has the
right to redeem the security at a specified price on or
after a specified date, but prior to its stated final
maturity.
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Cap
-
A limit, such as one placed on an adjustable rate
mortgage, on how much a monthly payment or interest rate
can increase or decrease, either at each adjustment
period or during the life of the mortgage. Payment caps
do not limit the amount of interest the lender is
earning, so they may cause negative amortization.
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Capacity
-
The ability to make mortgage payments on time,
dependant on assets and the amount of income each month
after paying housing costs, debts and other obligations.
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Capital Gain
-
The profit received based on the
difference of the original purchase price and the total
sale price.
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Capital Improvements
-
Property improvements that either
will enhance the property value or will increase the
useful life of the property.
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Capital or Cash Reserves
-
An individual's savings,
investments, or assets.
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Cash-Out Refinance
-
When a borrower refinances a
mortgage at a higher principal amount to get additional
money. Usually this occurs when the property has
appreciated in value. For example, if a home has a
current value of $100,000 and an outstanding mortgage of
$60,000, the owner could refinance $80,000 and have
additional $20,000 in cash.
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Cash Reserves
-
A cash amount sometimes required of the
buyer to be held in reserve in addition to the down
payment and closing costs; the amount is determined by
the lender.
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Casualty Protection
-
Property insurance that covers any
damage to the home and personal property either inside
or outside the home.
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Certificate of Title
-
A document provided by a qualified
source, such as a title company, that shows the property
legally belongs to the current owner; before the title
is transferred at closing, it should be clear and free
of all liens or other claims.
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Chapter 7 Bankruptcy
-
A bankruptcy that requires assets
be liquidated in exchange for the cancellation of debt.
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Chapter 13 Bankruptcy
-
This type of bankruptcy sets a
payment plan between the borrower and the creditor
monitored by the court. The homeowner can keep the
property, but must make payments according to the
court's terms within a 3 to 5 year period.
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Charge-Off
-
The portion of principal and interest due on
a loan that is written off when deemed to be
uncollectible.
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Clear Title
-
A property title that has no defects.
Properties with clear titles are marketable for sale.
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Closing
-
The final step in property purchase where the
title is transferred from the seller to the buyer.
Closing occurs at a meeting between the buyer, seller,
settlement agent, and other agents. At the closing the
seller receives payment for the property. Also known as
settlement.
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Closing Costs
-
Fees for final property transfer not
included in the price of the property. Typical closing
costs include charges for the mortgage loan such as
origination fees, discount points, appraisal fee,
survey, title insurance, legal fees, real estate
professional fees, prepayment of taxes and insurance,
and real estate transfer taxes. A common estimate of a
Buyer's closing costs is 2 to 4 percent of the purchase
price of the home. A common estimate for Seller's
closing costs is 3 to 9 percent.
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Cloud On The Title
-
Any condition which affects the
clear title to real property.
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Co-Borrower
-
An additional person that is responsible
for loan repayment and is listed on the title.
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Co-Signed Account
-
An account signed by someone in
addition to the primary borrower, making both people
responsible for the amount borrowed.
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Co-Signer
-
A person that signs a credit application with
another person, agreeing to be equally responsible for
the repayment of the loan.
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Collateral
-
Security in the form of money or property
pledged for the payment of a loan. For example, on a
home loan, the home is the collateral and can be taken
away from the borrower if mortgage payments are not
made.
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Collection Account
-
An unpaid debt referred to a
collection agency to collect on the bad debt. This type
of account is reported to the credit bureau and will
show on the borrower's credit report.
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Commission
-
An amount, usually a percentage of the
property sales price that is collected by a real estate
professional as a fee for negotiating the transaction.
Traditionally the home seller pays the commission. The
amount of commission is determined by the real estate
professional and the seller and can be as much as 6% of
the sales price.
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Common Stock
-
A security that provides voting rights in
a corporation and pays a dividend after preferred stock
holders have been paid. This is the most common stock
held within a company.
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Comparative Market Analysis (COMPS)
-
A property
evaluation that determines property value by comparing
similar properties sold within the last year.
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Compensating Factors
-
Factors that show the ability to
repay a loan based on less traditional criteria, such as
employment, rent, and utility payment history.
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Condominium
-
A form of ownership in which individuals
purchase and own a unit of housing in a multi-unit
complex. The owner also shares financial responsibility
for common areas.
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Conforming loan
-
Is a loan that does not exceed Fannie
Mae's and Freddie Mac's loan limits. Freddie Mac and
Fannie Mae loans are referred to as conforming loans.
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Consideration
-
An item of value given in exchange for a
promise or act.
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Construction Loan
-
A short-term, to finance the cost of
building a new home. The lender pays the builder based
on milestones accomplished during the building process.
For example, once a sub-contractor pours the foundation
and it is approved by inspectors the lender will pay for
their service.
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Contingency
-
A clause in a purchase contract outlining
conditions that must be fulfilled before the contract is
executed. Both, buyer or seller may include
contingencies in a contract, but both parties must
accept the contingency.
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Conventional Loan
-
A private sector loan, one that is
not guaranteed or insured by the U.S. government.
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Conversion Clause
-
A provision in some ARMs allowing it
to change to a fixed-rate loan at some point during the
term. Usually conversions are allowed at the end of the
first adjustment period. At the time of the conversion,
the new fixed rate is generally set at one of the rates
then prevailing for fixed rate mortgages. There may be
additional cost for this clause.
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Convertible ARM
-
An adjustable-rate mortgage that
provides the borrower the ability to convert to a
fixed-rate within a specified time.
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Cooperative (Co-op)
-
Residents purchase stock in a
cooperative corporation that owns a structure; each
stockholder is then entitled to live in a specific unit
of the structure and is responsible for paying a portion
of the loan.
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Cost of Funds Index (COFI)
-
An index used to determine
interest rate changes for some adjustable-rate
mortgages.
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Counter Offer
-
A rejection to all or part of a purchase
offer that negotiates different terms to reach an
acceptable sales contract.
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Covenants
-
Legally enforceable terms that govern the use
of property. These terms are transferred with the
property deed. Discriminatory covenants are illegal and
unenforceable. Also known as a condition, restriction,
deed restriction or restrictive covenant.
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Credit
-
an agreement that a person will borrow money and
repay it to the lender over time.
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Credit Bureau
-
An agency that provides financial
information and payment history to lenders about
potential borrowers. Also known as a National Credit
Repository.
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Credit Counseling
-
Education on how to improve bad
credit and how to avoid having more debt than can be
repaid.
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Credit Enhancement
-
A method used by a lender to reduce
default of a loan by requiring collateral, mortgage
insurance, or other agreements.
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Credit Grantor
-
The lender that provides a loan or
credit.
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Credit History
-
A record of an individual that lists all
debts and the payment history for each. The report that
is generated from the history is called a credit report.
Lenders use this information to gauge a potential
borrower's ability to repay a loan.
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Credit Loss Ratio
-
The ratio of credit-related losses to
the dollar amount of MBS outstanding and total mortgages
owned by the corporation.
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Credit Related Expenses
-
Foreclosed property expenses
plus the provision for losses.
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Credit Related Losses
-
Foreclosed property expenses
combined with charge-offs.
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Credit Repair Companies
-
Private, for-profit businesses
that claim to offer consumers credit and debt repayment
difficulties assistance with their credit problems and a
bad credit report.
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Credit Report
-
A report generated by the credit bureau
that contains the borrower's credit history for the past
seven years. Lenders use this information to determine
if a loan will be granted.
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Credit Risk
-
A term used to describe the possibility of
default on a loan by a borrower.
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Credit Score
-
A score calculated by using a person's
credit report to determine the likelihood of a loan
being repaid on time. Scores range from about 360 - 840:
a lower score meaning a person is a higher risk, while a
higher score means that there is less risk.
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Credit Union
-
A non-profit financial institution
federally regulated and owned by the members or people
who use their services. Credit unions serve groups that
hold a common interest and you have to become a member
to use the available services.
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Creditor
-
The lending institution providing a loan or
credit.
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Creditworthiness
-
The way a lender measures the ability
of a person to qualify and repay a loan.
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Debtor
-
The person or entity that borrows money. The
term debtor may be used interchangeably with the term
borrower.
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Debt-to-Income Ratio
-
A comparison or ratio of gross
income to housing and non-housing expenses; With the
FHA, the-monthly mortgage payment should be no more than
29% of monthly gross income (before taxes) and the
mortgage payment combined with non-housing debts should
not exceed 41% of income.
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Debt Security
-
A security that represents a loan from an
investor to an issuer. The issuer in turn agrees to pay
interest in addition to the principal amount borrowed.
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Deductible
-
The amount of cash payment that is made by
the insured (the homeowner) to cover a portion of a
damage or loss. Sometimes also called "out-of-pocket
expenses." For example, out of a total damage claim of
$1,000, the homeowner might pay a $250 deductible toward
the loss, while the insurance company pays $750 toward
the loss. Typically, the higher the deductible, the
lower the cost of the policy.
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Deed
-
A document that legally transfers ownership of
property from one person to another. The deed is
recorded on public record with the property description
and the owner's signature. Also known as the title.
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Deed-in-Lieu
-
To avoid foreclosure ("in lieu" of
foreclosure), a deed is given to the lender to fulfill
the obligation to repay the debt; this process does not
allow the borrower to remain in the house but helps
avoid the costs, time, and effort associated with
foreclosure.
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Default
-
The inability to make timely monthly mortgage
payments or otherwise comply with mortgage terms. A loan
is considered in default when payment has not been paid
after 60 to 90 days. Once in default the lender can
exercise legal rights defined in the contract to begin
foreclosure proceedings.
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Delinquency
-
Failure of a borrower to make timely
mortgage payments under a loan agreement. Generally
after fifteen days a late fee may be assessed.
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Deposit (Earnest Money)
-
Money put down by a potential
buyer to show that they are serious about purchasing the
home; it becomes part of the down payment if the offer
is accepted, is returned if the offer is rejected, or is
forfeited if the buyer pulls out of the deal. During the
contingency period the money may be returned to the
buyer if the contingencies are not met to the buyer's
satisfaction.
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Depreciation
-
A decrease in the value or price of a
property due to changes in market conditions, wear and
tear on the property, or other factors.
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Derivative
-
A contract between two or more parties where
the security is dependent on the price of another
investment.
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Disclosures
-
The release of relevant information about a
property that may influence the final sale, especially
if it represents defects or problems. "Full disclosure"
usually refers to the responsibility of the seller to
voluntarily provide all known information about the
property. Some disclosures may be required by law, such
as the federal requirement to warn of potential
lead-based paint hazards in pre-1978 housing. A seller
found to have knowingly lied about a defect may face
legal penalties.
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Discount Point
-
Normally paid at closing and generally
calculated to be equivalent to 1% of the total loan
amount, discount points are paid to reduce the interest
rate on a loan. In an ARM with an initial rate discount,
the lender gives up a number of percentage points in
interest to give you a lower rate and lower payments for
part of the mortgage term (usually for one year or
less). After the discount period, the ARM rate will
probably go up depending on the index rate.
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Down Payment
-
The portion of a home's purchase price
that is paid in cash and is not part of the mortgage
loan. This amount varies based on the loan type, but is
determined by taking the difference of the sale price
and the actual mortgage loan amount. Mortgage insurance
is required when a down payment less than 20 percent is
made.
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Document Recording
-
After closing on a loan, certain
documents are filed and made public record. Discharges
for the prior mortgage holder are filed first. Then the
deed is filed with the new owner's and mortgage
company's names.
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Due on Sale Clause
-
A provision of a loan allowing the
lender to demand full repayment of the loan if the
property is sold.
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Duration
-
The number of years it will take to receive
the present value of all future payments on a security
to include both principal and interest.
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Earnest Money (Deposit)
-
Money put down by a potential
buyer to show that they are serious about purchasing the
home; it becomes part of the down payment if the offer
is accepted, is returned if the offer is rejected, or is
forfeited if the buyer pulls out of the deal. During the
contingency period the money may be returned to the
buyer if the contingencies are not met to the buyer's
satisfaction.
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Earnings Per Share (EPS)
-
A corporation's profit that is
divided among each share of common stock. It is
determined by taking the net earnings divided by the
number of outstanding common stocks held. This is a way
that a company reports profitability.
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Easements
-
The legal rights that give someone other than
the owner access to use property for a specific purpose.
Easements may affect property values and are sometimes a
part of the deed.
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EEM: Energy Efficient Mortgage
-
An FHA program that
helps homebuyers save money on utility bills by enabling
them to finance the cost of adding energy efficiency
features to a new or existing home as part of the home
purchase.
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Eminent Domain
-
When a government takes private property
for public use. The owner receives payment for its fair
market value. The property can then proceed to
condemnation proceedings.
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Encroachments
-
A structure that extends over the legal
property line on to another individual's property. The
property surveyor will note any encroachment on the lot
survey done before property transfer. The person who
owns the structure will be asked to remove it to prevent
future problems.
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Encumbrance
-
Anything that affects title to a property,
such as loans, leases, easements, or restrictions.
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Equal Credit Opportunity Act (ECOA)
-
A federal law
requiring lenders to make credit available equally
without discrimination based on race, color, religion,
national origin, age, sex, marital status, or receipt of
income from public assistance programs.
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Equity
-
An owner's financial interest in a property;
calculated by subtracting the amount still owed on the
mortgage loon(s)from the fair market value of the
property.
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Escape Clause
-
A provision in a purchase contract that
allows either party to cancel part or the entire
contract if the other does not respond to changes to the
sale within a set period. The most common use of the
escape clause is if the buyer makes the purchase offer
contingent on the sale of another house.
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Escrow
-
Funds held in an account to be used by the
lender to pay for home insurance and property taxes. The
funds may also be held by a third party until
contractual conditions are met and then paid out.
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Escrow Account
-
A separate account into which the lender
puts a portion of each monthly mortgage payment; an
escrow account provides the funds needed for such
expenses as property taxes, homeowners insurance,
mortgage insurance, etc.
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Estate
-
The ownership interest of a person in real
property. The sum total of all property, real and
personal, owned by a person.
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Exclusive Listing
-
A written contract giving a real
estate agent the exclusive right to sell a property for
a specific timeframe.
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FICO Score
-
FICO is an abbreviation for Fair Isaac
Corporation and refers to a person's credit score based
on credit history. Lenders and credit card companies use
the number to decide if the person is likely to pay his
or her bills. A credit score is evaluated using
information from the three major credit bureaus and is
usually between 300 and 850.
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FSBO (For Sale by Owner)
-
A home that is offered for
sale by the owner without the benefit of a real estate
professional.
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Fair Credit Reporting Act
-
Federal act to ensure that
credit bureaus are fair and accurate protecting the
individual's privacy rights enacted in 1971 and revised
in October 1997.
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Fair Housing Act
-
A law that prohibits discrimination in
all facets of the home buying process on the basis of
race, color, national origin, religion, sex, familial
status, or disability.
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Fair Market Value
-
The hypothetical price that a
willing buyer and seller will agree upon when they are
acting freely, carefully, and with complete knowledge of
the situation.
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Familial Status
-
HUD uses this term to describe a single
person, a pregnant woman or a household with children
under 18 living with parents or legal custodians who
might experience housing discrimination.
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Fannie Mae
-
Federal National Mortgage Association
(FNMA); a federally-chartered enterprise owned by
private stockholders that purchases residential
mortgages and converts them into securities for sale to
investors; by purchasing mortgages, Fannie Mae supplies
funds that lenders may loan to potential homebuyers.
Also known as a Government Sponsored Enterprise (GSE).
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FHA "Federal Housing Administration"
-
Established in 1934
to advance homeownership opportunities for all
Americans; assists homebuyers by providing mortgage
insurance to lenders to cover most losses that may occur
when a borrower defaults; this encourages lenders to
make loans to borrowers who might not qualify for
conventional mortgages.
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First Mortgage
-
The mortgage with first priority if the
loan is not paid.
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Fixed Expenses
-
Payments that do not vary from month to
month.
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Fixed-Rate Mortgage
-
A mortgage with payments that
remain the same throughout the life of the loan because
the interest rate and other terms are fixed and do not
change.
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Fixture
-
Personal property permanently attached to real
estate or real property that becomes a part of the real
estate.
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Float
-
The act of allowing an interest rate and discount
points to fluctuate with changes in the market.
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Flood Insurance
-
Insurance that protects homeowners
against losses from a flood; if a home is located in a
flood plain, the lender will require flood insurance
before approving a loan.
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Forbearance
-
A lender may decide not to take legal
action when a borrower is late in making a payment.
Usually this occurs when a borrower sets up a plan that
both sides agree will bring overdue mortgage payments up
to date.
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Foreclosure
-
A legal process in which mortgaged property
is sold to pay the loan of the defaulting borrower.
Foreclosure laws are based on the statutes of each
state.
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Freddie Mac
-
Federal Home Loan Mortgage Corporation (FHLM);
a federally chartered corporation that purchases
residential mortgages, securitizes them, and sells them
to investors; this provides lenders with funds for new
homebuyers. Also known as a Government Sponsored
Enterprise (GSE).
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Front End Ratio
-
A percentage comparing a borrower's
total monthly cost to buy a house (mortgage principal
and interest, insurance, and real estate taxes) to
monthly income before deductions.
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GSE
-
Abbreviation for government sponsored enterprises:
a collection of financial services corporations formed
by the United States Congress to reduce interest rates
for farmers and homeowners. Examples include Fannie Mae
and Freddie Mac.
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Ginnie Mae
-
Government National Mortgage Association (GNMA);
a government-owned corporation overseen by the U.S.
Department of Housing and Urban Development, Ginnie Mae
pools FHA-insured and VA-guaranteed loans to back
securities for private investment; as With Fannie Mae
and Freddie Mac, the investment income provides funding
that may then be lent to eligible borrowers by lenders.
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Global Debt Facility
-
Designed to allow investors all
over the world to purchase debt (loans) of U.S. dollar
and foreign currency through a variety of clearing
systems.
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Good Faith Estimate
-
An estimate of all closing fees
including pre-paid and escrow items as well as lender
charges; must be given to the borrower within three days
after submission of a loan application.
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Graduated Payment Mortgages
-
Mortgages that begin with
lower monthly payments that get slowly larger over a
period of years, eventually reaching a fixed level and
remaining there for the life of the loan. Graduated
payment loans may be good if you expect your annual
income to increase.
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Grantee
-
An individual to whom an interest in real
property is conveyed.
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Grantor
-
An individual conveying an interest in real
property.
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Gross Income
-
Money earned before taxes and other
deductions. Sometimes it may include income from
self-employment, rental property, alimony, child
support, public assistance payments, and retirement
benefits.
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Guaranty Fee
-
Payment to FannieMae from a lender for the
assurance of timely principal and interest payments to
MBS (Mortgage Backed Security) security holders.
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HECM (Reverse Mortgage)
-
The reverse mortgage is used by
senior homeowners age 62 and older to convert the equity
in their home into monthly streams of income and/or a
line of credit to be repaid when they no longer occupy
the home. A lending institution such as a mortgage
lender, bank, credit union or savings and loan
association funds the FHA insured loan, commonly known
as HECM.
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Hazard Insurance
-
Protection against a specific loss,
such as fire, wind etc., over a period of time that is
secured by the payment of a regularly scheduled premium.
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HELP
-
Homebuyer Education Learning Program; an
educational program from the FHA that counsels people
about the home buying process; HELP covers topics like
budgeting, finding a home, getting a loan, and home
maintenance; in most cases, completion of the program
may entitle the homebuyer to a reduced initial FHA
mortgage insurance premium-from 2.25% to 1.75% of the
home purchase price.
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Home Equity Line of Credit
-
A mortgage loan, usually in
second mortgage, allowing a borrower to obtain cash
against the equity of a home, up to a predetermined
amount.
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Home Equity Loan
-
A loan backed by the value of a home
(real estate). If the borrower defaults or does not pay
the loan, the lender has some rights to the property.
The borrower can usually claim a home equity loan as a
tax deduction.
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Home Inspection
-
An examination of the structure and
mechanical systems to determine a home's quality,
soundness and safety; makes the potential homebuyer
aware of any repairs that may be needed. The homebuyer
generally pays inspection fees.
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Home Warranty
-
Offers protection for mechanical systems
and attached appliances against unexpected repairs not
covered by homeowner's insurance; coverage extends over
a specific time period and does not cover the home's
structure.
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Homeowner's Insurance
-
An insurance policy, also called
hazard insurance, that combines protection against
damage to a dwelling and its contents including fire,
storms or other damages with protection against claims
of negligence or inappropriate action that result in
someone's injury or property damage. Most lenders
require homeowners insurance and may escrow the cost.
Flood insurance is generally not included in standard
policies and must be purchased separately.
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Homeownership Education Classes
-
Classes that stress the
need to develop a strong credit history and offer
information about how to get a mortgage approved,
qualify for a loan, choose an affordable home, go
through financing and closing processes, and avoid
mortgage problems that cause people to lose their homes.
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Homestead Credit
-
Property tax credit program, offered
by some state governments, that provides reductions in
property taxes to eligible households.
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Housing Counseling Agency
-
Provides counseling and
assistance to individuals on a variety of issues,
including loan default, fair housing, and home buying.
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HUD
-
The U.S. Department of Housing and Urban
Development; established in 1965, HUD works to create a
decent home and suitable living environment for all
Americans; it does this by addressing housing needs,
improving and developing American communities, and
enforcing fair housing laws.
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HUD1 Statement
-
Also known as the "settlement sheet," or
"closing statement" it itemizes all closing costs; must
be given to the borrower at or before closing. Items
that appear on the statement include real estate
commissions, loan fees, points, and escrow amounts.
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HVAC
Heating, Ventilation and Air Conditioning; a
home's heating and cooling system.
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Indemnification
-
To secure against any loss or damage,
compensate or give security for reimbursement for loss
or damage incurred. A homeowner should negotiate for
inclusion of an indemnification provision in a contract
with a general contractor or for a separate indemnity
agreement protecting the homeowner from harm, loss or
damage caused by actions or omissions of the general
(and all sub) contractor.
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Index
-
The measure of interest rate changes that the
lender uses to decide how much the interest rate of an
ARM will change over time. No one can be sure when an
index rate will go up or down. If a lender bases
interest rate adjustments on the average value of an
index over time, your interest rate would not be as
volatile. You should ask your lender how the index for
any ARM you are considering has changed in recent years,
and where it is reported.
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Inflation
-
The number of dollars in circulation exceeds
the amount of goods and services available for purchase;
inflation results in a decrease in the dollar's value.
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Inflation Coverage
-
Endorsement to a homeowner's policy
that automatically adjusts the amount of insurance to
compensate for inflationary rises in the home's value.
This type of coverage does not adjust for increases in
the home's value due to improvements.
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Inquiry
-
A credit report request. Each time a credit
application is completed or more credit is requested
counts as an inquiry. A large number of inquiries on a
credit report can sometimes make a credit score lower.
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Interest
-
A fee charged for the use of borrowing money.
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Interest Rate
-
The amount of interest charged on a
monthly loan payment, expressed as a percentage.
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Interest Rate Swap
-
A transaction between two parties
where each agrees to exchange payments tied to different
interest rates for a specified period of time, generally
based on a notional principal amount.
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Intermediate Term Mortgage
-
A mortgage loan with a
contractual maturity from the time of purchase equal to
or less than 20 years.
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Insurance
-
Protection against a specific loss, such as
fire, wind etc., over a period of time that is secured
by the payment of a regularly scheduled premium.
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Joint Tenancy (with Rights of Survivorship):
-
two or more
owners share equal ownership and rights to the property.
If a joint owner dies, his or her share of the property
passes to the other owners, without probate. In joint
tenancy, ownership of the property cannot be willed to
someone who is not a joint owner.
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Judgment
-
a legal decision; when requiring debt
repayment, a judgment may include a property lien that
secures the creditor's claim by providing a collateral
source.
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Jumbo Loan
-
or non-conforming loan, is a loan that
exceeds Fannie Mae's and Freddie Mac's loan limits.
Freddie Mac and Fannie Mae loans are referred to as
conforming loans.
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Letter K
Late Payment Charges
-
the penalty the homeowner must pay
when a mortgage payment is made after the due date grace
period.
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Lease
-
a written agreement between a property owner and
a tenant (resident) that stipulates the payment and
conditions under which the tenant may occupy a home or
apartment and states a specified period of time.
-
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Lease Purchase (Lease Option)
-
assists low to moderate
income homebuyers in purchasing a home by allowing them
to lease a home with an option to buy; the rent payment
is made up of the monthly rental payment plus an
additional amount that is credited to an account for use
as a down payment.
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Lender
-
A term referring to an person or company that
makes loans for real estate purchases. Sometimes
referred to as a loan officer or lender.
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Lender Option Commitments:
-
an agreement giving a lender
the option to deliver loans or securities by a certain
date at agreed upon terms.
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Liabilities:
-
a person's financial obligations such as
long-term / short-term debt, and other financial
obligations to be paid.
-
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Liability Insurance:
-
insurance coverage that protects
against claims alleging a property owner's negligence or
action resulted in bodily injury or damage to another
person. It is normally included in homeowner's insurance
policies.
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Lien: a legal claim against property that must be
satisfied when the property is sold. A claim of money
against a property, wherein the value of the property is
used as security in repayment of a debt. Examples
include a mechanic's lien, which might be for the unpaid
cost of building supplies, or a tax lien for unpaid
property taxes. A lien is a defect on the title and
needs to be settled before transfer of ownership. A lien
release is a written report of the settlement of a lien
and is recorded in the public record as evidence of
payment.
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Lien Waiver: A document that releases a consumer
(homeowner) from any further obligation for payment of a
debt once it has been paid in full. Lien waivers
typically are used by homeowners who hire a contractor
to provide work and materials to prevent any
subcontractors or suppliers of materials from filing a
lien against the homeowner for nonpayment.
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Life Cap: a limit on the range interest rates can
increase or decrease over the life of an adjustable-rate
mortgage (ARM).
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Line of Credit: an agreement by a financial institution
such as a bank to extend credit up to a certain amount
for a certain time to a specified borrower.
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Liquid Asset: a cash asset or an asset that is easily
converted into cash.
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Listing Agreement:
-
a contract between a seller and a
real estate professional to market and sell a home. A
listing agreement obligates the real estate professional
(or his or her agent) to seek qualified buyers, report
all purchase offers and help negotiate the highest
possible price and most favorable terms for the property
seller.
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Loan: money borrowed that is usually repaid with
interest.
-
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Loan Acceleration: an acceleration clause in a loan
document is a statement in a mortgage that gives the
lender the right to demand payment of the entire
outstanding balance if a monthly payment is missed.
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Loan Fraud: purposely giving incorrect information on a
loan application in order to better qualify for a loan;
may result in civil liability or criminal penalties.
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Loan Officer: a representative of a lending or mortgage
company who is responsible for soliciting homebuyers,
qualifying and processing of loans. They may also be
called lender, loan representative, account executive or
loan rep.
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Loan Origination Fee: a charge by the lender to cover
the administrative costs of making the mortgage. This
charge is paid at the closing and varies with the lender
and type of loan. A loan origination fee of 1 to 2
percent of the mortgage amount is common.
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Loan Servicer: the company that collects monthly
mortgage payments and disperses property taxes and
insurance payments. Loan servicers also monitor
nonperforming loans, contact delinquent borrowers, and
notify insurers and investors of potential problems.
Loan servicers may be the lender or a specialized
company that just handles loan servicing under contract
with the lender or the investor who owns the loan.
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Loan to Value (LTV) Ratio: a percentage calculated by
dividing the amount borrowed by the price or appraised
value of the home to be purchased; the higher the LTV,
the less cash a borrower is required to pay as down
payment.
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Lock-In: since interest rates can change frequently,
many lenders offer an interest rate lock-in that
guarantees a specific interest rate if the loan is
closed within a specific time.
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Lock-in Period: the length of time that the lender has
guaranteed a specific interest rate to a borrower.
-
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Loss Mitigation: a process to avoid foreclosure; the
lender tries to help a borrower who has been unable to
make loan payments and is in danger of defaulting on his
or her loan
-
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Mandatory Delivery Commitment: an agreement that a
lender will deliver loans or securities by a certain
date at agreed-upon terms.
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Margin: the number of percentage points the lender adds
to the index rate to calculate the ARM interest rate at
each adjustment.
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Market Value: the amount a willing buyer would pay a
willing seller for a home. An appraised value is an
estimate of the current fair market value.
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Maturity: the date when the principal balance of a loan
becomes due and payable.
-
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Median Price: the price of the house that falls in the
middle of the total number of homes for sale in that
area.
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Medium Term Notes: unsecured general obligations of
Fannie Mae with maturities of one day or more and with
principal and interest payable in U.S. dollars.
-
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Merged Credit Report: raw data pulled from two or more
of the major credit-reporting firms.
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Mitigation: term usually used to refer to various
changes or improvements made in a home; for instance, to
reduce the average level of radon.
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Modification: when a lender agrees to modify the terms
of a mortgage without refinancing the loan.
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Mortgage: a lien on the property that secures the
Promise to repay a loan. A security agreement between
the lender and the buyer in which the property is
collateral for the loan. The mortgage gives the lender
the right to collect payment on the loan and to
foreclose if the loan obligations are not met.
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Mortgage Acceleration Clause: a clause allowing a
lender, under certain circumstances, demand the entire
balance of a loan is repaid in a lump sum. The
acceleration clause is usually triggered if the home is
sold, title to the property is changed, the loan is
refinanced or the borrower defaults on a scheduled
payment.
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Mortgage-Backed Security (MBS): a Fannie Mae security
that represents an undivided interest in a group of
mortgages. Principal and interest payments from the
individual mortgage loans are grouped and paid out to
the MBS holders.
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Mortgage Banker: a company that originates loans and
resells them to secondary mortgage lenders like Fannie
Mae or Freddie Mac.
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Mortgage Broker: a firm that originates and processes
loans for a number of lenders.
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Mortgage Life and Disability Insurance: term life
insurance bought by borrowers to pay off a mortgage in
the event of death or make monthly payments in the case
of disability. The amount of coverage decreases as the
principal balance declines. There are many different
terms of coverage determining amounts of payments and
when payments begin and end.
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Mortgage Insurance: a policy that protects lenders
against some or most of the losses that can occur when a
borrower defaults on a mortgage loan; mortgage insurance
is required primarily for borrowers with a down payment
of less than 20% of the home's purchase price. Insurance
purchased by the buyer to protect the lender in the
event of default. Typically purchased for loans with
less than 20 percent down payment. The cost of mortgage
insurance is usually added to the monthly payment.
Mortgage insurance is maintained on conventional loans
until the outstanding amount of the loan is less than 80
percent of the value of the house or for a set period of
time (7 years is common). Mortgage insurance also is
available through a government agency, such as the
Federal Housing Administration (FHA) or through
companies (Private Mortgage Insurance or PMI).
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Mortgage Insurance Premium (MIP): a monthly payment
-usually part of the mortgage payment - paid by a
borrower for mortgage insurance.
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Mortgage Interest Deduction: the interest cost of a
mortgage, which is a tax - deductible expense. The
interest reduces the taxable income of taxpayers.
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Mortgage Modification: a loss mitigation option that
allows a borrower to refinance and/or extend the term of
the mortgage loan and thus reduce the monthly payments.
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Mortgage Note: a legal document obligating a borrower to
repay a loan at a stated interest rate during a
specified period; the agreement is secured by a mortgage
that is recorded in the public records along with the
deed.
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Mortgage Qualifying Ratio: Used to calculate the maximum
amount of funds that an individual traditionally may be
able to afford. A typical mortgage qualifying ratio is
28: 36.
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Mortgage Score: a score based on a combination of
information about the borrower that is obtained from the
loan application, the credit report, and property value
information. The score is a comprehensive analysis of
the borrower's ability to repay a mortgage loan and
manage credit.
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Mortgagee: the lender in a mortgage agreement. Mortgagor
- The borrower in a mortgage agreement.
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Mortgagor: the borrower in a mortgage agreement
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Multifamily Housing: a building with more than four
residential rental units.
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Multiple Listing Service (MLS): within the Metro
Columbus area, Realtors submit listings and agree to
attempt to sell all properties in the MLS. The MLS is a
service of the local Columbus Board of Realtors®. The
local MLS has a protocol for updating listings and
sharing commissions. The MLS offers the advantage of
more timely information, availability, and access to
houses and other types of property on the market.
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National Credit Repositories: currently, there are three
companies that maintain national credit - reporting
databases. These are Equifax, Experian, and Trans Union,
referred to as Credit Bureaus.
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Negative Amortization: amortization means that monthly
payments are large enough to pay the interest and reduce
the principal on your mortgage. Negative amortization
occurs when the monthly payments do not cover all of the
interest cost. The interest cost that isn't covered is
added to the unpaid principal balance. This means that
even after making many payments, you could owe more than
you did at the beginning of the loan. Negative
amortization can occur when an ARM has a payment cap
that results in monthly payments not high enough to
cover the interest due.
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Net Income: Your take-home pay, the amount of money that
you receive in your paycheck after taxes and deductions.
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No Cash Out Refinance: a refinance of an existing loan
only for the amount remaining on the mortgage. The
borrower does not get any cash against the equity of the
home. Also called a "rate and term refinance."
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No Cost Loan: there are many variations of a no cost
loan. Generally, it is a loan that does not charge for
items such as title insurance, escrow fees, settlement
fees, appraisal, recording fees or notary fees. It may
also offer no points. This lessens the need for upfront
cash during the buying process however no cost loans
have a higher interest rate.
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Nonperforming Asset: an asset such as a mortgage that is
not currently accruing interest or which interest is not
being paid.
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Note: a legal document obligating a borrower to repay a
mortgage loan at a stated interest rate over a specified
period of time.
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Note Rate: the interest rate stated on a mortgage note.
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Notice of Default: a formal written notice to a borrower
that there is a default on a loan and that legal action
is possible.
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Notional Principal Amount: the proposed amount which
interest rate swap payments are based but generally not
paid or received by either party.
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Non-Conforming loan: is a loan that exceeds Fannie Mae's
and Freddie Mac's loan limits. Freddie Mac and Fannie
Mae loans are referred to as conforming loans.
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Notary Public: a person who serves as a public official
and certifies the authenticity of required signatures on
a document by signing and stamping the document.
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Letter O
Offer: indication by a potential buyer of a willingness
to purchase a home at a specific price; generally put
forth in writing.
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Original Principal Balance: the total principal owed on
a mortgage prior to any payments being made.
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Origination: the process of preparing, submitting, and
evaluating a loan application; generally includes a
credit check, verification of employment, and a property
appraisal.
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Origination Fee: the charge for originating a loan; is
usually calculated in the form of points and paid at
closing. One point equals one percent of the loan
amount. On a conventional loan, the loan origination fee
is the number of points a borrower pays.
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Owner Financing: a home purchase where the seller
provides all or part of the financing, acting as a
lender.
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Ownership: ownership is documented by the deed to a
property. The type or form of ownership is important if
there is a change in the status of the owners or if the
property changes ownership.
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Owner's Policy: the insurance policy that protects the
buyer from title defects.
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PITI: Principal, Interest, Taxes, and Insurance: the
four elements of a monthly mortgage payment; payments of
principal and interest go directly towards repaying the
loan while the portion that covers taxes and insurance
(homeowner's and mortgage, if applicable) goes into an
escrow account to cover the fees when they are due.
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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.
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PMI: Private Mortgage Insurance; privately-owned
companies that offer standard and special affordable
mortgage insurance programs for qualified borrowers with
down payments of less than 20% of a purchase price.
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Partial Claim: a loss mitigation option offered by the
FHA that allows a borrower, with help from a lender, to
get an interest-free loan from HUD to bring their
mortgage payments up to date.
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Partial Payment: a payment that is less than the total
amount owed on a monthly mortgage payment. Normally,
lenders do not accept partial payments. The lender may
make exceptions during times of difficulty. Contact your
lender prior to the due date if a partial payment is
needed.
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Payment Cap: a limit on how much an ARM's payment may
increase, regardless of how much the interest rate
increases.
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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.
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Payment Due Date: Contract language specifying when
payments are due on money borrowed. The due date is
always indicated and means that the payment must be
received on or before the specified date. Grace periods
prior to assessing a late fee or additional interest do
not eliminate the responsibility of making payments on
time.
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Perils: for homeowner's insurance, an event that can
damage the property. Homeowner's insurance may cover the
property for a wide variety of perils caused by
accidents, nature, or people.
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Personal Property: any property that is not real
property or attached to real property. For example
furniture is not attached however a new light fixture
would be considered attached and part of the real
property.
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Planned Unit Development (PUD): a development that is
planned, and constructed as one entity. Generally, there
are common features in the homes or lots governed by
covenants attached to the deed. Most planned
developments have common land and facilities owned and
managed by the owner's or neighborhood association.
Homeowners usually are required to participate in the
association via a payment of annual dues.
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Points: a point is equal to one percent of the principal
amount of your mortgage. For example, if you get a
mortgage for $95,000, one point means you pay $950 to
the lender. Lenders frequently charge points in both
fixed-rate and adjustable-rate mortgages in order to
increase the yield on the mortgage and to cover loan
closing costs. These points usually are collected at
closing and may be paid by the borrower or the home
seller, or may be split between them.
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Power of Attorney: a legal document that authorizes
another person to act on your behalf. A power of
attorney can grant complete authority or can be limited
to certain acts or certain periods of time or both.
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Pre-Approval: a lender commits to lend to a potential
borrower a fixed loan amount based on a completed loan
application, credit reports, debt, savings and has been
reviewed by an underwriter. The commitment remains as
long as the borrower still meets the qualification
requirements at the time of purchase. This does not
guaranty a loan until the property has passed
inspections underwriting guidelines.
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Predatory Lending: abusive lending practices that
include a mortgage loan to someone who does not have the
ability to repay. It also pertains to repeated
refinancing of a loan charging high interest and fees
each time.
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Predictive Variables: The variables that are part of the
formula comprising elements of a credit-scoring model.
These variables are used to predict a borrower's future
credit performance.
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Preferred Stock: stock that takes priority over common
stock with regard to dividends and liquidation rights.
Preferred stockholders typically have no voting rights.
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Pre-foreclosure Sale: a procedure in which the borrower
is allowed to sell a property for an amount less than
what is owed on it to avoid a foreclosure. This sale
fully satisfies the borrower's debt.
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Prepayment: any amount paid to reduce the principal
balance of a loan before the due date or payment in full
of a mortgage. This can occur with the sale of the
property, the pay off the loan in full, or a
foreclosure. In each case, full payment occurs before
the loan has been fully amortized.
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Prepayment Penalty: a provision in some loans that
charge a fee to a borrower who pays off a loan before it
is due.
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Pre-Foreclosure sale: allows a defaulting borrower to
sell the mortgaged property to satisfy the loan and
avoid foreclosure.
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Pre-Qualify: a lender informally determines the maximum
amount an individual is eligible to borrow. This is not
a guaranty of a loan.
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Premium: an amount paid on a regular schedule by a
policyholder that maintains insurance coverage.
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Prepayment: payment of the mortgage loan before the
scheduled due date; may be Subject to a prepayment
penalty.
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Prepayment Penalty: a fee charged to a homeowner who
pays one or more monthly payments before the due date.
It can also apply to principal reduction payments.
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Prepayment Penalty Mortgage (PPM): a type of mortgage
that requires the borrower to pay a penalty for
prepayment, partial payment of principal or for repaying
the entire loan within a certain time period. A partial
payment is generally defined as an amount exceeding 20%
of the original principal balance.
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Price Range: the high and low amount a buyer is willing
to pay for a home.
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Prime Rate: the interest rate that banks charge to
preferred customers. Changes in the prime rate are
publicized in the business media. Prime rate can be used
as the basis for adjustable rate mortgages (ARMs) or
home equity lines of credit. The prime rate also affects
the current interest rates being offered at a particular
point in time on fixed mortgages. Changes in the prime
rate do not affect the interest on a fixed mortgage.
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Principal: the amount of money borrowed to buy a house
or the amount of the loan that has not been paid back to
the lender. This does not include the interest paid to
borrow that money. The principal balance is the amount
owed on a loan at any given time. It is the original
loan amount minus the total repayments of principal
made.
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Principal, Interest, Taxes, and Insurance (PITI): the
four elements of a monthly mortgage payment; payments of
principal and interest go directly towards repaying the
loan while the portion that covers taxes and insurance
(homeowner's and mortgage, if applicable) goes into an
escrow account to cover the fees when they are due.
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Private Mortgage Insurance (PMI): insurance purchased by
a buyer to protect the lender in the event of default.
The cost of mortgage insurance is usually added to the
monthly payment. Mortgage insurance is generally
maintained until over 20 Percent of the outstanding
amount of the loan is paid or for a set period of time,
seven years is normal. Mortgage insurance may be
available through a government agency, such as the
Federal Housing Administration (FHA) or the Veterans
Administration (VA), or through private mortgage
insurance companies (PMI).
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Promissory Note: a written promise to repay a specified
amount over a specified period of time.
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Property (Fixture and Non-Fixture): in a real estate
contract, the property is the land within the legally
described boundaries and all permanent structures and
fixtures. Ownership of the property confers the legal
right to use the property as allowed within the law and
within the restrictions of zoning or easements. Fixture
property refers to those items permanently attached to
the structure, such as carpeting or a ceiling fan, which
transfers with the property.
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Property Tax: a tax charged by local government and used
to fund municipal services such as schools, police, or
street maintenance. The amount of property tax is
determined locally by a formula, usually based on a
percent per $1,000 of assessed value of the property.
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Property Tax Deduction: the U.S. tax code allows
homeowners to deduct the amount they have paid in
property taxes from there total income.
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Public Record Information: Court records of events that
are a matter of public interest such as credit,
bankruptcy, foreclosure and tax liens. The presence of
public record information on a credit report is regarded
negatively by creditors.
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Punch List: a list of items that have not been completed
at the time of the final walk through of a newly
constructed home.
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Purchase Offer: A detailed, written document that makes
an offer to purchase a property, and that may be amended
several times in the process of negotiations. When
signed by all parties involved in the sale, the purchase
offer becomes a legally binding contract, sometimes
called the Sales Contract.
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Letter Q
Qualifying Ratios: guidelines utilized by lenders to
determine how much money a homebuyer is qualified to
borrow. Lending guidelines typically include a maximum
housing expense to income ratio and a maximum monthly
expense to income ratio.
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Quitclaim Deed: a deed transferring ownership of a
property but does not make any guarantee of clear title.
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RESPA: Real Estate Settlement Procedures Act; a law
protecting consumers from abuses during the residential
real estate purchase and loan process by requiring
lenders to disclose all settlement costs, practices, and
relationships
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Radon: a radioactive gas found in some homes that, if
occurring in strong enough concentrations, can cause
health problems.
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Rate Cap: a limit on an ARM on how much the interest
rate or mortgage payment may change. Rate caps limit how
much the interest rates can rise or fall on the
adjustment dates and over the life of the loan.
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Rate Lock: a commitment by a lender to a borrower
guaranteeing a specific interest rate over a period of
time at a set cost.
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Real Estate Agent: an individual who is licensed to
negotiate and arrange real estate sales; works for a
real estate broker.
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Real Estate Mortgage Investment Conduit (REMIC): a
security representing an interest in a trust having
multiple classes of securities. The securities of each
class entitle investors to cash payments structured
differently from the payments on the underlying
mortgages.
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Real Estate Property Tax Deduction: a tax deductible
expense reducing a taxpayer's taxable income.
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Real Estate Settlement Procedures Act (RESPA): a law
protecting consumers from abuses during the residential
real estate purchase and loan process by requiring
lenders to disclose all settlement costs, practices, and
relationships
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Real Property: land, including all the natural resources
and permanent buildings on it.
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REALTOR®: a real estate agent or broker who is a member
of the NATIONAL ASSOCIATION OF REALTORS, and its local
and state associations.
Recorder: the public official who keeps records of
transactions concerning real property. Sometimes known
as a "Registrar of Deeds" or "County Clerk."
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Recording: the recording in a registrar's office of an
executed legal document. These include deeds, mortgages,
satisfaction of a mortgage, or an extension of a
mortgage making it a part of the public record.
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Recording Fees: charges for recording a deed with the
appropriate government agency.
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Refinancing: paying off one loan by obtaining another;
refinancing is generally done to secure better loan
terms (like a lower interest rate).
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Rehabilitation Mortgage: a mortgage that covers the
costs of rehabilitating (repairing or Improving) a
property; some rehabilitation mortgages - like the FHA's
203(k) - allow a borrower to roll the costs of
rehabilitation and home purchase into one mortgage loan.
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Reinstatement Period: a phase of the foreclosure process
where the homeowner has an opportunity to stop the
foreclosure by paying money that is owed to the lender.
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Remaining Balance: the amount of principal that has not
yet been repaid.
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Remaining Term: the original amortization term minus the
number of payments that have been applied.
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Repayment plan: an agreement between a lender and a
delinquent borrower where the borrower agrees to make
additional payments to pay down past due amounts while
making regularly scheduled payments.
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Return On Average Common Equity: net income available to
common stockholders, as a percentage of average common
stockholder equity.
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Reverse Mortgage (HECM): the reverse mortgage is used by
senior homeowners age 62 and older to convert the equity
in their home into monthly streams of income and/or a
line of credit to be repaid when they no longer occupy
the home. A lending institution such as a mortgage
lender, bank, credit union or savings and loan
association funds the FHA insured loan, commonly known
as HECM.
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Right of First Refusal: a provision in an agreement that
requires the owner of a property to give one party an
opportunity to purchase or lease a property before it is
offered for sale or lease to others.
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Risk Based Capital: an amount of capital needed to
offset losses during a ten-year period with adverse
circumstances.
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Risk Based Pricing: Fee structure used by creditors
based on risks of granting credit to a borrower with a
poor credit history.
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Risk Scoring: an automated way to analyze a credit
report verses a manual review. It takes into account
late payments, outstanding debt, credit experience, and
number of inquiries in an unbiased manner.
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Sale Leaseback: when a seller deeds property to a buyer
for a payment, and the buyer simultaneously leases the
property back to the seller.
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Second Mortgage: an additional mortgage on property. In
case of a default the first mortgage must be paid before
the second mortgage. Second loans are more risky for the
lender and usually carry a higher interest rate.
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Secondary Mortgage Market: the buying and selling of
mortgage loans. Investors purchase residential mortgages
originated by lenders, which in turn provides the
lenders with capital for additional lending.
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Secured Loan: a loan backed by collateral such as
property.
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Security: the property that will be pledged as
collateral for a loan.
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Seller Take Back: an agreement where the owner of a
property provides second mortgage financing. These are
often combined with an assumed mortgage instead of a
portion of the seller's equity.
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Serious Delinquency: a mortgage that is 90 days or more
past due.
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Servicer: a business that collects mortgage payments
from borrowers and manages the borrower's escrow
accounts.
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Servicing: the collection of mortgage payments from
borrowers and related responsibilities of a loan
servicer.
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Setback: the distance between a property line and the
area where building can take place. Setbacks are used to
assure space between buildings and from roads for a many
of purposes including drainage and utilities.
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Settlement: another name for closing.
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Settlement Statement: a document required by the Real
Estate Settlement Procedures Act (RESPA). It is an
itemized statement of services and charges relating to
the closing of a property transfer. The buyer has the
right to examine the settlement statement 1 day before
the closing. This is called the HUD 1 Settlement
Statement.
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Special Forbearance: a loss mitigation option where the
lender arranges a revised repayment plan for the
borrower that may include a temporary reduction or
suspension of monthly loan payments.
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Stockholders' Equity: the sum of proceeds from the
issuance of stock and retained earnings less amounts
paid to repurchase common shares.
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Stripped MBS (SMBS): securities created by "stripping"
or separating the principal and interest payments from
the underlying pool of mortgages into two classes of
securities, with each receiving a different proportion
of the principal and interest payments.
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Sub-Prime Loan: "B" Loan or "B" paper with FICO scores
from 620 - 659. "C" Loan or "C" Paper with FICO scores
typically from 580 to 619. An industry term to used to
describe loans with less stringent lending and
underwriting terms and conditions. Due to the higher
risk, sub-prime loans charge higher interest rates and
fees.
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Subordinate: to place in a rank of lesser importance or
to make one claim secondary to another.
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Survey: a property diagram that indicates legal
boundaries, easements, encroachments, rights of way,
improvement locations, etc. Surveys are conducted by
licensed surveyors and are normally required by the
lender in order to confirm that the property boundaries
and features such as buildings, and easements are
correctly described in the legal description of the
property.
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Sweat Equity: using labor to build or improve a property
as part of the down payment
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Third Party Origination: a process by which a lender
uses another party to completely or partially originate,
process, underwrite, close, fund, or package the
mortgages it plans to deliver to the secondary mortgage
market.
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Terms: The period of time and the interest rate agreed
upon by the lender and the borrower to repay a loan.
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Title: a legal document establishing the right of
ownership and is recorded to make it part of the public
record. Also known as a Deed.
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Title 1: an FHA-insured loan that allows a borrower to
make non-luxury improvements (like renovations or
repairs) to their home; Title I loans less than $7,500
don't require a property lien.
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Title Company: a company that specializes in examining
and insuring titles to real estate.
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Title Defect: an outstanding claim on a property that
limits the ability to sell the property. Also referred
to as a cloud on the title.
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Title Insurance: insurance that protects the lender
against any claims that arise from arguments about
ownership of the property; also available for
homebuyers. An insurance policy guaranteeing the
accuracy of a title search protecting against errors.
Most lenders require the buyer to purchase title
insurance protecting the lender against loss in the
event of a title defect. This charge is included in the
closing costs. A policy that protects the buyer from
title defects is known as an owner's policy and requires
an additional charge.
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Title Search: a check of public records to be sure that
the seller is the recognized owner of the real estate
and that there are no unsettled liens or other claims
against the property.
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Transfer Agent: a bank or trust company charged with
keeping a record of a company's stockholders and
canceling and issuing certificates as shares are bought
and sold.
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Transfer of Ownership: any means by which ownership of a
property changes hands. These include purchase of a
property, assumption of mortgage debt, exchange of
possession of a property via a land sales contract or
any other land trust device.
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Transfer Taxes: State and local taxes charged for the
transfer of real estate. Usually equal to a percentage
of the sales price.
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Treasury Index: can be used as the basis for adjustable
rate mortgages (ARMs) It is based on the results of
auctions that the U.S. Treasury holds for its Treasury
bills and securities.
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Truth-in-Lending: a federal law obligating a lender to
give full written disclosure of all fees, terms, and
conditions associated with the loan initial period and
then adjusts to another rate that lasts for the term of
the loan.
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Two Step Mortgage: an adjustable-rate mortgage (ARM)
that has one interest rate for the first five to seven
years of its term and a different interest rate for the
remainder of the term.
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Trustee: a person who holds or controls property for the
benefit of another.
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Underwriting: the process of analyzing a loan
application to determine the amount of risk involved in
making the loan; it includes a review of the potential
borrower's credit history and a judgment of the property
value.
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Up Front Charges: the fees charged to homeowners by the
lender at the time of closing a mortgage loan. This
includes points, broker's fees, insurance, and other
charges.
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VA (Department of Veterans Affairs): a federal agency,
which guarantees loans made to veterans; similar to
mortgage insurance, a loan guarantee protects lenders
against loss that may result from a borrower default.
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VA Mortgage: a mortgage guaranteed by the Department of
Veterans Affairs (VA).
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Variable Expenses: Costs or payments that may vary from
month to month, for example, gasoline or food.
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Variance: a special exemption of a zoning law to allow
the property to be used in a manner different from an
existing law.
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Vested: a point in time when you may withdraw funds from
an investment account, such as a retirement account,
without penalty.
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Walk Through: the final inspection of a property being
sold by the buyer to confirm that any contingencies
specified in the purchase agreement such as repairs have
been completed, fixture and non-fixture property is in
place and confirm the electrical, mechanical, and
plumbing systems are in working order.
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Warranty Deed: a legal document that includes the
guarantee the seller is the true owner of the property,
has the right to sell the property and there are no
claims against the property.
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Letter X
Letter Y
Zoning: local laws established to control the uses of
land within a particular area. Zoning laws are used to
separate residential land from areas of non-residential
use, such as industry or businesses. Zoning ordinances
include many provisions governing such things as type of
structure, setbacks, lot size, and uses of a building.
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