A type of financing where the buyer assumes an existing loan, obtains a second mortgage from a third party lender, and takes a third loan from the seller.
“Subject to” Clause
A clause in a deed that states that the grantee takes title “subject to” and existing mortgage. The original mortgagor is alone responsible for any deficiency, should there be foreclosure of the mortgage.
'As-is' agreement
Certifies that a buyer accepts whatever physical condition a property is in at the time the contract is signed. May be controlled by state and local regulations.
12-Month Treasury Average (MTA)
This is an index that is the 12 month average of the monthly average yields of U.S. Treasury securities adjusted to a constant one year maturity. It is computed by averaging the previous 12 monthly values of the 1-Year Constant Maturity Treasury (CMT). Because this index is an annual average, it is more secure than the 1-Year CMT index. The MTA index usually fluctuates slightly more than the 11th District Cost of Funds Index (COFI), although its movements track each other closely. The MTA and COFI-indexed adjustable rate mortgages (ARM) work much the same way. ARMs tied to the MTA index may have the potential for negative amortization.
A review of the public records relating to the title to a property. An attorney or title insurance company reviews the abstract of title to establish whether there are any title flaws that must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause
A provision that allows the lender to demand the immediate repayment of the mortgage loan balance due to circumstances such as: failure to make payments, bankruptcy, nonpayment of taxes on mortgaged property, or the breaking of loan covenants.
Acceptance
A contractual agreement that binds the offeree to the terms and responsibilities outlined in the offer.
Accrued Interest
Interest earned for the period of time passed since the interest was last paid.
Acquisition Loan
A loan made for the sole purpose of purchasing land. Also called "land acquisition loan."
Add-on Interest
The amount of interest paid on the principal of a loan for the term of that loan.
Additional Principal Payment
A payment by a borrower made in excess of the required monthly payment in order to reduce the remaining balance on the loan.
Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate is adjusted periodically based on a pre-selected index. Also known as a "floating rate mortgage."
Adjusted Basis
The base price of an asset or security that reflects any deductions taken on, or improvements to the asset or security. Adjusted basis is used to compute the gain or loss when the asset or security is sold.
Adjusted Gross Income
The gross income of a building if it is fully rented, not including an allowance for estimated vacancies.
Adjustment Date
The date that the interest rate changes on an adjustable rate mortgage (ARM).
Adjustment Interval
The period of time between changes in the interest rate and/or monthly payments for an adjustable rate mortgage (ARM), typically, one, three, or five years.
Adjustment Period
The period of time passing between adjustment dates for an adjustable rate mortgage (ARM).
Administrator
A person appointed by a probate court to manage and distribute the estate of a person who has died without a will.
Affordability Analysis
An examination of a buyer's ability to afford a house, by reviewing income, liabilities, available funds, mortgage type, home price, and closing costs.
Alt-A
This is a type of loan program that is almost conforming, but slightly off on one or more criteria.
Amortization
The repayment of a mortgage loan, both the principal and interest, through regular installments.
Amortization Term
The number of months required to repay the mortgage loan.
Annual Mortgage Statement
A report sent to the borrower each year stating the amount of taxes, insurance, and interest paid during the year, as well as the remaining mortgage loan balance.
Annual Percentage Rate (APR)
A figure that calculates the full cost of a loan including interest rate and all other fees associated with securing a loan.
Apartment Conversion
The conversion of a rental apartment building to individually owned units.
Application Fee
The fee charged by the lender to the borrower for applying for a loan.
Appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Appraiser
A person familiar with local real estate values, qualified by education, training, and experience to estimate the value of real property and personal property.
Appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
Arms Length Transaction
All parties involved in a real estate transaction with no personal interest in the transaction or other involved persons.
Assessed Value
The valuation placed upon property by a public tax assessor for purposes of taxation.
Assessment
The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.
Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).
Assignment
The transfer of a mortgage from one person to another.
Assignment of Leases & Rents
The instrument evidencing transfer by a lessee to the Lender and/or assigns of the exact interest of said lessee including rent receipts.
Assumption
The act of taking over an obligation or liability of a mortgage note from the previous borrower.
Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be legally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.
Attorney-in-Fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An 'Assumption of Mortgage' is often confused with 'purchasing subject to a mortgage.' When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both 'Assumption of Mortgage' and 'Purchasing Subject to a Mortgage' are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
A financial statement that shows assets, liabilities, and net worth as of a specific date.
Balloon Mortgage
A mortgage that has fixed monthly payments that will amortize it over a stated term but that requires a lump sum payment to be due at the end of an earlier specified term.
Balloon Payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
Basis Point
A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.
Before-Tax Income
Income before taxes are deducted.
Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
Binder or 'Offer to Purchase'
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded. Broker (See Real Estate Broker)
Biweekly Payment Mortgage
A mortgage that allows payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.
Blanket Mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
Bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a Deed of Trust.
Bond Financing
A type of financing which is an agreement to repay the principal along with the interest on a specified date.
Borrower
Any entity that is, or when loan is made will become, the obligor on the loan. For commercial loans, the obligor may be an Individual, Corporation, Partnership, Limited Liability Co (LLC) or a Trust, depending on the loan amount.
Breach
A violation of any legal obligation.
Bridge Loan
A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as 'swing loan.'
Broker (real estate)
A licensed real estate professional who, typically, represents the seller of a property. A broker's duties might include: determining market values, advertising properties for sale, showing properties to prospective buyers, and advising clients with regard to offers and related matters.
Builder Loans (also developer loans)
These are loans for builders who are financing the construction of multiple properties or spec/model homes before they are sold to an occupant.
Building Code
Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.
Building Line or Setback
Guidelines that limit the distance from the street or adjacent properties where construction may not extend. The building line may be established by building codes, zoning ordinances, or restrictive covenants in deeds or leases.
Buy Down
Money advanced by an individual (seller, builder, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years.
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
Cancellation Clause
The details in a lease, or other contract, under which each party may terminate the agreement.
Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate may increase or decrease.
Cap Rate
A rate of return used to derive the capital value of an income stream. Value = Annual Income / Cap Rate.
Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.
Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
Capital Improvements Escrow
A trust account established to hold funds allocated for the completion of rehabilitation, repairs or incomplete items of construction as required by an escrow agreement.
Capitalization Process
A process by which anticipated future income is converted into one lump sum value.
Carryback Financing
A transaction where the seller of the property takes a promissory note for some, or all, of the equity in their house, upon its selling. The promissory note specifies the terms under which the buyer of the property is expected to pay the amount owed to the seller over time. Carrybacks can be secondary financing, after a separate first mortgage obtained elsewhere, or the carryback might be for the whole amount as well. Also referred to as "seller financing."
Carrying Charges
The costs incurred to maintain a property when it is non-productive or in interim use.
Cash Flow
Money available for debt service, less tenant improvement reserves and leasing improvement reserves when applicable.
Cash-out Refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate liens. In-hand cash that is received from any given refinance or mortgage.
Certificate of Deposit
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.
Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
Certificate of Sale
An official document that entitles the buyer to receive a deed, pending court confirmation.
Certificate of Title
A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title, which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.
Certificate of Veteran Status
A document that enables veterans who have served 90 days of continuous active duty to obtain lower down payments on certian FHA insured loans. It may be obtained by sending DD 214 to the local VA office with form 26-8261: Request for Certificate of Veteran Status.
Chain of Title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Change Frequency
The monthly frequency of payments and/or interest rate changes in an adjustable rate mortgage (ARM).
Chapter 11
A type of bankruptcy that allows the debtor to maintain operating control of the business while restructuring and reorganizing debts, and creating an acceptable debt-payment plan. Also known as "debtor in possession."
Chapter 13
A type of bankruptcy plan where the debtor repays the creditor on a scheduled three-to-five year period. Also called "wageearner plan."
Chapter 7
A type of bankruptcy filing which allows the debtor's assets to be distributed among the creditors. Also called a "liquidation."
Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called 'settlement.'
Closing Costs
Costs associated with the purchase of a home that must be paid at the sale closing. These could include mortgage fees, title insurance, appraisal, inspection fees, and points.
Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quit claim deed, release, or court action.
Co-Borrower
An additional borrower on a loan. A co-borrower's obligation on a loan is the same as the borrower's.
Co-Maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.
Coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
Combination Loan
With this type of loan, you receive a first mortgage for a percentage of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance), consider combination loans.
Combined Loan-to-Value (CLTV)
The relationship between the unpaid principal balances of all the mortgages on a property (usually first and second) and the property's appraised value (or sales price, if it is lower).
Commercial Loan
Financing given on a commercial property. Financed amount is determined by the particular property, based off previous reported income histories and projected rental income and leaves a reserve of 25% (see Debt Service Coverage).
Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the sales price of the property or loan.
Commitment
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a 'loan commitment.'
Common Area Assessments
Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.
Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD), a condominium project's homeowners' association, or a cooperative project's cooperative corporation, that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
Community Home Improvement Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.
Community Property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
Comparables
An abbreviation for 'comparable properties.' used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities, and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
Condemnation
The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.
Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
Condominium Hotel
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services, and that is operated as a commercial hotel even though the units are individually owned.
Conforming Loan
The current conforming loan limit is $359,650 and below. Conforming loan limits change annually.
Construction Loan
A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
Construction to Permanent
A type of loan to pay off an existing construction loan, lot loan, and any additional construction costs. Must be completed and inspected before loan closes and funds to pay off, but it has to be approved prior to completion
Consumer Credit Counseling
This is a non-profit organization that helps citizens lower their debt payments, and consolidate payments under this orgranization. They are also know as CCCS (consumer credit counseling services).
Consumer Reporting Agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Contract
An agreement between two or more parties, especially one that is written and enforceable by law.
Conventional Mortgage
Any mortgage that is not insured or guaranteed by the federal government.
Conversion Clause
A condition in an adjustable rate mortgage (ARM) that allows the loan to be converted to a fixed-rate mortgage at some point during the term.
Convertibility Clause
A provision in some adjustable rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified time frames after loan closing.
Convertible Arm
An adjustable rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
Cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Corporate Relocation Arrangements
When an employer pays all or part of the costs to relocate an employee to another location of the company.
Correspondent
brokers or bankers and sells them to a wholesale lender through a prior commitment. The lender who originates the loan then receives a service fee from the correspondent lender.
Cosigner
An individual, other than the borrower, who signs a mortgage loan obligation and, thereby, assumes equal liability.
Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Coupon Rate
The actual interest rate on a debt, bond, note, or other fixed income security. The coupon rate on a mortgage is the contract rate stated in the mortgage note.
Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
Credit
1. A measurement of a person's ability to pay bills on time. Several companies track individuals' credit histories by detailing late or missed payments on loans, credit cards, and other debts. 2.An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit Enhancement
A process to reduce credit risk, and provide the lender with reassurance that they will be compensated if the borrower defaults, by requiring collateral, insurance, or other agreements.
Credit History
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Life Insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.
Credit Report
A report of an individual's credit history prepared by a credit bureau and used by lenders to determine a potential borrower's creditworthiness. Independent sources compile the report, which lists the borrower's debts, liabilities, and assets.
Credit Repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
Creditor
An entity, such as a mortgage company or bank, that loans money for repayment and interest.
Cure
A loan that is removed from a delinquency status with no loss to the insurer.
Current Assets
Assets that could be converted into cash within a year, such as cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other such assets.
A refinance transaction that uses the equity in your house or monies from your mortgage to consolidate your debt into one low rate monthly payment.
Debt Ratio
The total of the proposed monthly payments divided by the total monthly income.
Debt Service Coverage Ratio
The ratio calculated by dividing the property's cash flow available for debt service by the annual principal and interest requirements. ('DSC')
Declaration of Trust
A written document from one having legal title to a property, that the property is held in trust for the benefit of another.
Deed
A document that transfers real estate from one party to another. Officially recorded in government records.
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument
Deed-in-Lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a 'voluntary conveyance.'
Default
Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.
Deficiency
The difference between the balance on a loan and profits from the sale of the loan collateral.
Deficiency Judgment
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states.
Delegated Underwriting and Servicing (DUS)
Fannie Mae allows certain lenders to process and approve FNMA’s multifamily loans wherein the lender takes a percentage of the risk.
Delinquency
A loan in which a payment is overdue but not yet in default.
Delivery
The actual placement of the property to the grantee, usually by delivery of a deed to the buyer or by recording of the deed.
Demand Note
There is no set day for repayment of a this note, but it is due on the “demand” of the lender.
Density
The number of persons or buildings occupying a certain amount of land. An acre is usually used.
Department of Veterans Affairs (VA)
An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.
Deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
Depreciation
A decline in the value of property; the opposite of appreciation.
Direct Reduction Mortgage
An amortized mortgage in which principal and interest payments are paid monthly with interest being computed on the remaining balance.
Discount Points
Charges levied by the mortgage lender to obtain a better interest rate, usually payable at closing. One point represents 1% of the mortgage loan amount.
Discount Rate
The Federal Reserve System’s rate of interest charged to banks that buy money from them. An increase in the rate discourages banks from borrowing. A compound interest rate used to convert expected future income into a present value income.
Disposition of Real Estate Statement
A requirement for the borrower that they will occupy the property being purchased even though they may own other property. The borrower must state that the other property will be sold or rented.
Documentary Stamps
A state tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.
Documentary Transfer Tax
A tax charged by the city or county of a property based on the sales price upon the transfer of that property.
Double Declining Balance Method of Depreciation
A use of the declining balance method, but with double the depreciation allowable by straight line. This is an accelerated method.
Double Escrow
Two concurrent escrows on the same property, having the same buyer and seller of the property. Escrow 1 buys from escrow 2 and then sells the same property to another. This process is illegal in many states unless a full disclosure is made.
Doublewide
A type of manufactured housing that comes as two units joined together at the lot or park it is to be placed on.
Dower
The rights of a widow or widower of the property upon the spouse’s death.
Down Payment
The part of the purchase price, which the buyer pays in cash and does not finance with a mortgage.
Drive by Appraisal
A type of appraisal where valuations are based only on public records and exterior inspections.
Dual Agency
The representation of both the buyer and seller by the same agency at the same time. Full disclosures are required.
Due Diligence
An investigation or audit by the investor of a potential investment. Due diligence examines all material facts in regards to a sale.
Due-on-sale Provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
