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REAL ESTATE GLOSSARY
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- Additional Borrowers
Borrowers who contribute income and credit history to the
qualification process of a loan and whose names appear on all closing
documents. Each additional borrower is equally liable for the debt and
condition of the property.
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Adjustment Date
The date the interest rate changes for an adjustable rate
mortgage (ARM).
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Adjustment Period
The interval of months between the interest rate adjustment
dates for an adjustable rate mortgage (ARM).
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Adjustable Rate Mortgage
(ARM)
A mortgage loan in which the interest rate is adjusted
periodically according to a pre-determined adjustment criteria.
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Amount Financed
The Amount Financed is not the amount of the loan. It is
the requested loan amount minus the prepaid finance charge. The Amount
Financed is the amount on which the APR is based. For example, if the
borrower requests $100,000 and the Prepaid Finance Charge totals $4,000,
the Amount Financed would be $96,000.
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Annual Percentage Rate
(APR)
The actual cost of a mortgage loan expressed as a yearly
rate. The APR will be higher than the interest rate stated on the
application and note if it includes fees which are categorized as pre-paid
finance charges such as: interest, discount points, origination fee,
required mortgage insurance and other related fees. The Truth in Lending
Act requires lenders to disclose an APR to assist the borrower in
measuring the actual cost of a loan on an annualized basis.
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Application
A form used by mortgage lenders to document necessary
information concerning the mortgage loan applicant(s).
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Appraisal
An official report created by a qualified appraiser that
establishes an opinion or estimate of property value. The estimate of
value is generally obtained by comparing homes similar to the "subject"
home within the same location or neighborhood.
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Appraised Value
An opinion or estimate of property value provided by a
certified property appraiser. The estimate of value is generally obtained
by comparing homes similar to the "subject" home that are within the same
location or neighborhood.
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Available Cash
The amount of
liquid assets (i.e. checking, savings, mutual funds, etc.) immediately
available to pay closing costs and down payment.
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Average Interest Rate
The actual average
interest rate for a combination of debts based upon a total weighted
interest rate calculation. Utilizing each loan balance and interest rate,
the calculator determines an average interest rate for multiple debts.
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Borrower
An individual (also
known as mortgagor) who receives funds in the form of a loan with an
obligation to repay the principal with interest.
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CAPS
Safeguards on ARM
loans that limit the amount a monthly payment or interest rate may
increase. An interest rate cap limits the percent the rate can increase or
decrease for the initial and additional adjustment periods. The payment
cap limits the amount the payment can increase or decrease for each
adjustment period. An ARM loan must also have a "life of loan" cap
limiting the maximum percent the rate can increase or decrease for the
life of the loan.
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Cash Needed
The total
dollar amount required for payment of closing costs and down payment.
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Cash Out Refinance
A mortgage loan that
allows the borrower to pay off an existing debt and obtain excess money
from the equity of their home for payment of closing costs and additional
funds for personal needs (i.e., college tuition, home improvement, remodel
home, purchase automobile and etc).
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Closing
The final meeting
where the sale and transfer of property and/or loan settlement is fully
executed. This meeting generally requires the borrower(s), seller(s),
lender (or their agent) to be present. The closing includes the delivery
of a deed, signing of notes, and the collection and disbursement of funds
necessary to complete the sale and loan transaction. Also known as
Settlement.
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Closing Costs
The costs associated
with purchasing a new home (or transfer of home) and obtaining a mortgage
loan. Fees are generally assessed at closing and may include: insurance,
loan fees, title fees, transfer fees, taxes, settlement or closing fee,
survey fee, title insurance, appraisal fees, etc. The total closing costs
are approximately 5% of the mortgage loan amount.
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Co-borrower
Borrower(s) who
contribute income and credit history to the qualification process of a
loan and whose name(s) appear(s) on all closing documents. The co-borrower
is also liable for the debt and condition of property.
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Collateral
An item of
value pledged as security for a debt. The real estate is pledged as
collateral for a mortgage loan and is bound by signing and recording a
mortgage or deed of trust.
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Condominium
A structure of two or
more units where the interior space is individually owned, and the balance
of the land (structure and land) are commonly owned by the owners of each
individual unit.
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Cooperative
A structure of
two or more units in which the right to occupy a unit is obtained by the
purchase of stock in the corporation that owns the building or units.
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Cost to Refinance a Loan
The fees and total
cost associated with obtaining a new mortgage loan and refinancing an
existing mortgage loan. Generally fees are assessed at closing and may
include: insurance, title fees, transfer fees, taxes, settlement or
closing fee, survey fee, title insurance, appraisal fees, etc. The total
closing cost is typically 5% of the mortgage loan amount.
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Credit Report
A report obtained
from a credit bureau agency or company that discloses a borrower's credit
history and current credit status.
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Debt Consolidation Loan
A type of loan that
allows the borrower to payoff all or a portion of existing debt (including
the existing mortgage loan) from loan proceeds.
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Deed of Trust
An instrument used in
many states in place of a mortgage. The property is transferred to a
trustee by the borrower (trustor), in favor of the lender (beneficiary)
and reconveyed upon payment in full.
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Deposit
A sum of money given
to the seller, real estate broker or escrow agent with an offer to
purchase real estate as evidence of good faith. Also known as earnest
money.
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Discount Points
An amount
payable to the lender paid by the borrower or seller to increase the
lender's effective yield and reduce the interest rate. One point is equal
to one percent of the loan amount. Also known as discount fee.
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Earnest Money
A sum of money given to the seller, real estate broker or
escrow agent with an offer to purchase real estate as evidence of good
faith. Also known as deposit.
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Equifax Credit Services
A credit
reporting agency that provides a detailed report itemizing an individual's
credit history and current credit status.
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Equity
The portion of a property's value over and above the
loans (liens) against it (i.e., value of property minus loans against
property).
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Finance Charge
The total amount of
interest, prepaid finance charge and specific required insurance premiums
(if applicable) that the borrower is expected to pay over the life of the
loan.
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Fixed Interest Rate
An interest rate that
does not change during the entire term or life of the loan.
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Fixed Monthly Debt
The amount of monthly
payment required to be paid each month. Sometimes referred to as "minimum
monthly payment" for credit card or revolving accounts.
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Gift Funds
Transfer of funds to
assist with payment of closing costs and/or down payment. Investors
typically require that gift funds may only be received from the borrower's
parents and/or grandparents with no intent for repayment.
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Gross Monthly Income
The total monthly
income earned before taxes and any other deductions.
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Hazard Insurance
Insurance for a
specific property that protects the insured for loss caused by natural
causes (i.e., fire, disasters and vandalism, depending on the terms of the
policy also known as Homeowner's Insurance).
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Home Equity Loan
A type of loan that
allows homeowners to acquire a loan in addition to their original
mortgage/lien using a portion or all of the equity in their home (primary
residence). A home equity loan is a generally a second mortgage on the
subject property and may be used for any personal needs (i.e., college
education, debt consolidation, home improvement, etc).
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Installment Loans
A loan that has a
fixed (or closed-end) term (i.e., 36 months) and fixed unchanging monthly
payments. When the loan is paid in full the borrower cannot advance
additional money unlike a revolving loan.
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Interest Rate
The percentage of an
amount of money that is borrowed and is paid for during a specific period
specified in the terms of the loan.
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Investment Property
A property designated solely
as a "rental" or "leased" property.
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Lender Name
The name of the
mortgage lender that has been assigned to review and process the loan
application.
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Line of Credit
(Revolving Line of Credit)
A loan with a maximum
credit limit that allows the borrower(s) to disburse funds up to the
maximum credit line as needed. Funds may be disbursed repeatedly as the
principal balance is paid down up to the maximum credit limit available. A
line of credit functions similar to a credit card and may be accessed by
writing a check or a using a debit card.
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Loan Amount
The total amount
requested by the borrower to be financed. This amount is the basis of many
loan fee calculations. For refinance loans, the loan amount will include
the balance of all loans the borrower requests to be paid off, including
the original mortgage, other personal debt and/or cash out amount.
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Loan Balance
The outstanding
balance of a loan not paid in full, excluding any accrued interest.
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Loan Product
The loan program that
dictates the finance type, amortization term and other pertinent loan
functions (i.e., fixed or adjustable rate and 360 or 180 months).
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Manufactured Home
A type of house that is constructed in a factory, delivered
to a property location and set on a foundation. In the past, manufactured
homes were called "mobile homes". However, "mobile" is no longer an
accurate name because fewer than five percent of such homes are ever moved
off the owner's original site.
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Maturity
The termination or
due date on which final payment of a loan must be paid in full.
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Monthly Housing Payment
Typically the total
amount of principal, interest, taxes, and insurance (PITI) paid each month
on a mortgage loan. Many lenders and investors limit the monthly housing
payment to 28% of the gross monthly income.
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Monthly Payment Savings
The total monthly
payment reduction a borrower may gain by refinancing their mortgage loan.
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Mortgage Insurance (MI)
Insurance required by
investors to protect the lender in case the borrower defaults on the loan.
Mortgage Insurance is typically required for conventional loans that have
a down payment less than 20% of the purchase price. FHA and VA loans have
different insurance and guidelines. Also known as Private Mortgage
Insurance.
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Note
A written agreement and promise from the borrower(s) to pay
a definite sum of money at a stated interest rate during a specified date
and term. The note contains a description of the collateral and conditions
under which the loan is to be repaid.
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Number of Years
with Employer
The total number of
years the borrower has been employed with the current employer. Many loan
programs may contain specific criteria allowing higher Loan-to-Value or
Debt-to-Income ratios based upon years with current employer.
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Origination Fee
The fee charged by a
lender to originate a mortgage loan. Typically the fee is a percentage of
the loan amount, such as one percent.
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Outstanding Debt to
Consolidate
The total amount of all debt the borrower desires to payoff
and consolidate into one loan and monthly payment.
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Payment Schedule
A schedule detailing the amount and due date of payments
required to be paid over the life of the loan. The dollar figures
represent principal, interest and private mortgage insurance (if
applicable). This schedule does not reflect payment for taxes and
insurance.
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Pre-qualification
A request by a prospective loan applicant for a preliminary
determination of whether the prospective applicant would likely qualify
for credit under a lender's standards, or of the amount of credit for
which the prospective applicant likely would qualify. Some lenders
evaluate pre-qualification requests through a procedure that is separate
from the lender's normal loan application process; others use the same
process. Pre-qualification is generally not a commitment to lend.
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Prepaid Finance Charge
Certain charges made
in connection with the loan that must be paid upon the loan closing. These
charges are defined in Regulation Z of Federal Register and entail, but
not inclusive to: Loan Origination Fee, Discount Points, Private Mortgage
Insurance and Tax Service Fee. Some loan fees are excluded from the
Prepaid Finance Charge such as appraisal and credit report fees.
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Principal and Interest
(PI)
A portion of the
monthly payment that is applied toward the loan balance and accrued
interest. Payment for property taxes and insurance is considered PITI
(principal, interest, taxes and insurance).
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Principal, Interest,
Taxes and Insurance (PITI)
The monthly payment
that is applied toward the loan balance, accrued interest and escrow
account. Principal, interest, taxes and insurance are the four major
components of a regular monthly mortgage payment. Payment for principal
and interest is considered PI (principal and interest).
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Principal Balance
The outstanding
balance due on a debt, excluding any accrued interest or other fees.
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Private Mortgage
Insurance (PMI)
Insurance
required by investors to protect the lender in case the borrower defaults
on the loan. Mortgage Insurance is typically required for conventional
loans that have a down payment less than 20% of the purchase price. FHA
and VA loans have different insurance and guidelines. Also known as
Mortgage Insurance.
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Proceeds from Sale of
Current Home
The total funds remaining from
the sale and transfer of a current home. The proceeds are calculated by
subtracting all settlement fees and lien payoffs from the sales price
(purchase price). Many borrowers use the proceeds from the sale of the
current home as down payment and/or payment of closing costs for the
purchase of a new home.
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Property Class
A description of the structure of the property determining
whether it is uses as a Single (one) Family Home, Multi Family Home (2-4),
Condominium, Town Home, Manufactured or Mobile Home and Cooperative
Housing.
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Property Use
A description of the property that determines whether the
property will be used as a Primary Residence Home, Investment Property or
Second Home.
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Qualify
A process of
preparing a borrower for a mortgage loan by analyzing their financial data
and comparing to loan program criteria to determine the best-fit program
based upon loan-to-value ratio, debt-to-income ratio and credit
information (if applicable).
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Rate Type
A factor that
determines the payment structure and whether the rate may adjust during
the life of the loan. Generally fixed or adjustable (ARM).
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Refinance
The process of
obtaining a new mortgage loan to pay off the existing debt from loan
proceeds using the same property as collateral. This type of loan is
generally requested to obtain a lower interest rate and/or reduce payment
or term.
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Revolving Loan
A loan with a maximum
credit limit that provides the borrower with the ability to disburse funds
up to the maximum credit line as needed. The line of credit can be
accessed repeatedly as the balance is paid down. A revolving loan
functions similar to a credit card and may be accessed by writing a check
or a using a debit card.
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Security
Real estate property pledged as collateral to secure the
payment of a debt, most commonly used in mortgage loan transactions.
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Settlement
The final meeting
where the sale and transfer of property and/or loan closing is fully
executed. This meeting generally requires the borrower(s), seller(s),
lender (or their agent) to be present. The closing includes the delivery
of a deed, signing of notes, and the collection and disbursement of funds
necessary to complete the sale and loan transaction (also known as
closing).
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State Property is
Located
The actual state of which the property is located.
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Student Loans
A government affirmed loan obtained to finance the cost of
tuition for approved colleges and universities.
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Survey
The measurement of the boundaries of a parcel of land
documented by a registered surveyor.
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Term
A period of time (usually months) that a loan must be
repaid.
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Title
The evidence of ownership and rights an individual has
to a specific property/real estate.
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Title Insurance
Insurance
obtained from a title insurance company that insures the purchaser, lender
(mortgagee), or other agent from any loss caused by defects of title on
the subject property/real estate.
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Total of Payments
The Total of Payments
represents the sum of all payments made toward principal, interest and
mortgage insurance (if applicable) for the life of the loan.
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Total Fixed Monthly Debt
The total monthly
sum of all monthly loan payments for all borrowers. This total should only
include the minimum required payment and not the actual payment made (if
excess payment is made).
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Transfer Tax
State or local tax on
the transfer of title (ownership) when the title passes from one owner to
another.
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Type of Property
A description of the
structure of the property determining whether it is uses as a Single (one)
Family Home, Multi Family Home (2-4), Condominium, Town Home, Manufactured
or Mobile Home and Cooperative Housing.
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