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A to Z on Mortgages

Mortgage Glossary

Abstract (Of Title)
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause
Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or the sale of the property.

Accretion
The buildup of land from natural forces such as wind or water.

Acknowledgment
As a verb, the confirmation by a party executing a legal document that this is his signature and a voluntary act. This confirmation is made to an authorized officer of the Court or notary public who signs a statement also called an acknowledgment.

Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage.

Agency
A relationship in which the agent is given the authority to act on behalf of another person (Principal).

Amortization
Monthly loan payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the total cost for each loan.

Appraisal
An estimate of the value of the property, require the appraiser to be licensed in that state. To comply with lending requirements, lenders/loan originators must order the appraisal.

Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly high, market-rate interest charges will apply.

Balloon (Payment)
Mortgage usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at the time specified in the contract.

Certificate of Occupancy
A certificate issued by a local government body stating that the building is in a condition to be occupied.

Closing (escrow)
The meeting between the buyer, seller, and lender at the agent's escrow company where the property and funds legally change hands. Also called a settlement meeting or escrow closing.

Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Deed
The written document conveying real property. The Deed must be executed (signed), ACKNOWLEDGED, and DELIVERED to the Grantee. Once recorded at the Courthouse, the original piece of paper is not needed to convey title in the future.

Deed of Trust
A voluntary lien to secure a debt deeding the property to Trustees who foreclose, sell the property at public auction, in the event of default on the Note the Deed of Trust secures.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Down Payment
Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent of FHA and VA loans.

Encumbrance
Any lien, liability or charge against a property.

Equity
The difference between the fair near market value and current indebtedness, also referred to as the owner's interest.

Escrow
Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

Federal Mortgage Bank
The FMBN was created essentially to serve as a wholesale and apex housing finance institution in Nigeria under Decree 7 of 1977. The provision of long-term credit facilities to mortgage institutions in the country; encouragement and promotion of development of mortgage institutions at state and national levels, supervision and control of the activities of mortgage institutions, mobilization of savings particularly through the National Housing Fund, promotion of investment in the manufacturing of building materials and promotion of research on construction and mortgage finance. The role of the FMBN has also been expanded to back the mortgage finance market with the capital market and develop the viable secondary mortgage market and to mobilise foreign funds into the housing finance sub-sector. The shortcomings of the FMBN operation must have led to the re-examination of National Housing Policy and the establishment of the National Housing Fund; the two policy instruments of government aimed at enhancing housing delivery in Nigeria. The National Housing Policy also led to establishment of Primary Mortgage Institutions (PMI) in Nigeria. Unfortunately within less than five years of the taking off of PMI most of their operations were confronted with problems whichresulted into the situation whereby most of the PMI’s have their offices closed.

Fiduciary Relationship
A relationship of trust and confidence between principal and agent; lawyer and client; doctor and patient; etc.

Fixed-Rate Mortgage
A mortgage on which the interest rate is set for the term of the loan.

Foreclosure
A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt.

Gross Monthly Income
The total amount the borrower earns per month, before any expenses are deducted.

Home Owners Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm, and the like.

Interim Financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Investor
Money source for a lender.

Joint Tenants
Two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property automatically.

Judgment Lien
A judgment is a lien against all real property owned by the judgment debtor in the county where the judgment is docketed (recorded).

Jumbo Loan
A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These loans usually carry a slightly higher interest rate.

Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Life Cap
With regard to an adjustable rate mortgage, a ceiling the note rate cannot exceed over the life of the loan.

Loan Application
The loan application is the source of information on which the lender bases a decision to make the loan; defines the term of the loan, gives the name(s) of the borrowers(s), place of employment, salary, bank accounts and credit references, and describes the real estate that is to be mortgaged. It also stipulates the amount of the loan being applied for and the repayment terms.

Loan Originator
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. You, the consumer, typically pay no additional costs for this service.

Loan To-Value Ratio (LTV)
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mortgage
A voluntary lien filed against property to secure a debt, usually a loan. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure. Compare, Deed of Trust.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent.

Mortgagee
The lender.

Mortgagor
The borrower of homeowner.

Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Note
A written promise to pay a certain sum of money at a certain time. A negotiable note starts "Pay to the order of" and is transferable by endorsement similar to a check.

Notary Public
One authorized by law to acknowledge and certify documents and signatures.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property, usually computed as a percentage of face value of the loan.

PITI
Principal, interest, taxes, and insurance. Also called monthly housing expenses.

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Prepaids
Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Principal
The amount of debt, not counting interest, left on a loan.

Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of public records.

Real Estate Settlement Procedures Act (RESPA)
RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once before application and once prior to or at settlement. The law requires lenders to furnish information after application only.

Secondary Market
A market for the purpose of purchase and sale of existing mortgages usually at discounted prices to provide greater liquidity to the mortgagee/lender.

Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement
See Closing.

Settlement Costs
See Closing Costs.

Tenants in Common
Two or more persons own the property with no right of survivorship so, if one dies, his/her interest passes on to his/her heirs, not necessarily to the co-owner. One may not sue the other to partition the property. A creditor of one may not claim the property or the proceeds of sale.

Title
A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a Title Insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often paid by the purchaser and/or seller.

Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Trust
A right to or in property held for the benefit of another. A trust may be written or implied. An implied trust is called a Constructive Trust.

Variable Rate Mortgage (VRM)
See Adjustable Rate Mortgage.

Verification of Employment
A document signed by the borrower's employer verifying the status and balance of his/her financial accounts.

 

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