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Mortgage & Home Equity Glossary of Common Terms

Abstract (of Title) A compiled history of transactions, such as transfers and liabilities, regarding a piece of land. It is examined to determine if there are any errors or omissions on the title, and often is reviewed when title transfer is imminent.

Acceleration Clause Included in a mortgage, it allows the lender to demand early payment (sometimes in full) for certain reasons, such as defaulting on the loan, destruction of property, or transfer of title.

Adjustable Rate Mortgage A mortgage in which interest rates and payments adjust as market interest rates fluctuate. Generally, such loans start off with a low initial interest rate that increases over the life of the loan. Interest rates change as determined by the loan agreement.

Agreement of SaleA contract between the seller and buyer of a property that specifies all terms and conditions. Also known as a Purchase Agreement.

Amortization Paying off a debt in partial payments rather than in one lump sum.

Appraisal An expert estimate of the value of a property, often for the purpose of selling.

Assumption of Mortgage A buyer agrees to become responsible for the payment of a mortgage already attached to property being sold. The buyer replaces the seller in the mortgage agreement, and the seller no longer is liable for payment. The mortgage lender must approve this agreement.

Binder A buyer makes a deposit as a temporary agreement to purchase a piece of property. He or she has the sole right to go through with the purchase for a certain period of time, after which the deposited money is relinquished.

Building Line A line that is the boundary for the building of property from the street or from other properties, by law or deed. Also known as a Setback Line.

Certificate of Title A written document issued to prove legal ownership of a piece of property. When a home is sold, the title is transferred to switch legal ownership from the buyer to the seller, but it does not necessarily protect the homeowner in and of itself.

Closing Costs Fees incurred during a transfer of property that do not include the selling price itself. Usually paid by the buyer, the amount generally is based on the sale price of the property.

Cloud (on Title) An irregularity or condition found through a title search that may affect the owner’s title to the property.

Commission Compensation paid to a broker or realtor for selling a property, usually around 10% of the purchase price on a home.

Condemnation Legal confiscation of private property for public purpose, with compensation given to the owner. The government may take such action through its “power of eminent domain”, or if the property is unfit.

Conventional Mortgage An original mortgage that is not a government loan (Department of Housing and Urban Development, Farmers Home Administration, Veterans Administration, etc.), and usually does not exceed 75% of a home’s value.

Deed A legal document that transfers ownership of a property title from one person to another. It must be signed both by the buyer and the seller, and should be presented to the buyer on the day of closing.

Deed of Trust A document that takes the place of a mortgage in some states. Three parties are represented on the deed – the borrower, the lender, and the trustee. The trustee “holds” the property for the borrower until the borrower has repaid the lender, at which time the deed becomes nullified. Should the borrower fail to pay, on the other hand, the trustee may sell the property as payment.

Default Failure to pay as required by law or contract, such as in a mortgage or deed of trust agreement. Generally, a loan is considered in default if payment is 30 days past due, and collections actions may be initiated.

Depreciation Decrease in a property’s value due to the passage of time, wear from use, or outside conditions.

Documentary Stamps Stamps required on mortgages or deeds that serve as a state tax during title transfer.

Down Payment An initial payment made as a deposit on some property. The amount usually is determined as a percentage of the value of property, and is nonrefundable in the event that the buyer decides not to purchase the property.

Encumbrance A mortgage, claim, lien, right, liability or any other interest in some property that may blemish a title. It may lower property value, or make the property more difficult to sell.

Equity Usually defined as the difference between the market value of a piece of property and any debts against it, such as outstanding mortgages, claims, liens, rights or liabilities. Equity in a home rises as such debts decrease and/or as the value of the property increases.

Escrow An objective third party holds documents and funds for one party of a two-party agreement until a specific time or action. The third party is known as the “escrow agent”, and is a common fixture in some mortgage agreements and property transfers.

Fixed Rate Mortgage A mortgage in which interest rates and payments are fixed throughout the term of the loan, and do not fluctuate based on market interest rates. It often is preferrable to an adjustable rate mortgage.

Foreclosure A legal procedure in which defaulting on mortgage payments or breaking the terms of the agreement cause a borrower to lose a property’s title, or cause the property to be sold.

General Warranty Deed A deed that protects the buyer from claims against the title after a sale. The seller agrees to reveal the history of the title, and, should it fail after the sale, the seller is liable for all associated costs and responsibilities.

Grantee The buyer or purchaser of a piece of property.

Grantor The seller of a piece of property.

Hazard Insurance A home insurance policy that offers protection against common hazards such as fire or vandalism, and some natural disasters.

HUD Stands for the federal Department of Housing and Urban Development. It promotes programs such as public housing, community development, and urban renewal, and includes the Federal Housing Administration, which insures mortgages.

Jumbo Loan A loan that is above the limits established by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because they cannot be provided by FNMA or FHLMC, they carry high interest rates. Also known as Nonconforming Loans.

Lien A legal claim against one’s property as security for due payment. It generally attaches to all valuable property, and may hinder the ability to transfer ownership.

Marketable Title A property title that is clear of liens or defects. Also known as a Merchantable Title.

Mortgage A loan that is borrowed in order to purchase a home, with the home used as security for the repayment of the debt. It allows borrowers the ability to purchase a home while paying only a portion up front, and becomes ineffective once the debt has been repaid.

Mortgage Commitment A written agreement between a mortgage lender and a borrower that the lender will provide a mortgage loan and the borrower will agree with all applicable terms and conditions.

Mortgage Insurance Premium Monthly payments made by a mortgage borrower to the Federal Housing Administration (FHA), or to a private lender for transmittal to the FHA, to protect against default on mortgage payments.

Mortgage (Open-End) A mortgage that allows the borrower to borrow more money in the future without having to refinance or pay additional lender fees, often up to a certain limit.

Mortgagee The lender in a mortgage agreement.

Mortgagor The borrower in a mortgage agreement.

Nonconforming Loans A loan that is above the limits established by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because they cannot be provided by FNMA or FHLMC, they carry high interest rates. Also known as Jumbo Loans.

Offer to Purchase A legal document that specifies the conditions and terms, including price, under which a buyer will agree to purchase property from a seller. It becomes a legal contract once signed by all involved parties.

Plat A map of property, or a specific area, that shows boundaries, subdivisions, measurements, and easements drawn to scale.

Prepayment Payment on a debt either partially or in full before it is due. Some mortgage agreements do not allow prepayment, or may charge a fee for doing so.

Principal The amount of an original debt that has not yet been paid. It does not include interest, but rather is the balance on which interest is based.

Quitclaim Deed A deed in which a property buyer assumes any risks associated with the title. The title comes “as is”, and relinquishes the seller from responsibility from interests and claims.

Refinance Obtaining a new mortgage loan with a lower interest rate in order to pay off a different mortgage on the same property.

Restrictive Covenant A clause in a deed that restricts the use of land or property for a certain period of time, certain operations, or for the benefit of someone other than the land or property owner.

Setback A line that is the boundary for the building of a property from the street or from other properties, by law or deed. Also known as a Building Line.

Special Assessments A tax charged on certain real estate for the benefit of public improvement.

Special Lien A lien that attaches to a specific piece of property rather than to all of an individual’s property, as often is the case with a traditional lien.

Special Warranty Deed A deed that protects a property buyer from any claims against the title that arose during the seller’s possession. The seller is responsible for any adverse actions against the title that occurred prior to the transfer of property.

Survey A document produced by a surveyor after he or she has examined a piece of land to determine its boundaries, measurements, size, location, and descriptions, often required by a mortgage lender before granting a loan.

Title Legal document that evidences property ownership or one’s interest in a piece of property.

Title Insurance Insurance that protects a policyholder against defects or omissions on a property title.

Title Search An investigation into all public records and recorded documents connected to a piece of property to confirm property ownership and the condition of the title. Also known as Title Examination.

Yield Spread Premium An increased fee or interest rate that is meant to counterbalance the costs incurred by a broker.

 
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