- Summary of
public records relating to the title to a particular piece of land.
An attorney or title insurance company searcher 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
- Standard clause in
a mortgage that requires the balance of the loan to become due
immediately, if regular mortgage payments are not made or for breach
of other conditions of the mortgage.
Adjustable-Rate Mortgage (ARM)
rate is not fixed, but changes during the life of the loan in line
with movements in an index rate. You may also see ARMs referred to
as AMLs (adjustable mortgage loans) or VRMs (variable-rate
- Length of
time for which the interest rate is fixed on an ARM. After that
period it will be adjusted. Typically once (T-Bill) or twice a year
(LIBOR), depending on the index.
- A.K.A. Purchase
Agreement or Sales Agreement. Contract in which a seller agrees to
sell and a buyer agrees to buy, under certain specific terms and
conditions spelled out in writing and signed by both parties.
Alienation Clause/Due on Sale Clause
- Provision in a
mortgage document stating that the loan must be paid in full if
ownership is transferred.
- A payment
plan which enables the borrower to reduce his debt gradually through
monthly payments of principal.
Percentage Rate (APR)
- Measure of
the cost of credit, expressed as a yearly rate. It includes interest
as well as other loan charges (points, PMI, etc). Since all
lenders follow the same (complex and sometimes error prone) 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. Only a zero point, zero closing cost loan
would have an APR equal to the actual Note rate. The APR is almost
always greater than the Note Rate.
estimate of the quality or value of real estate as of a given date.
- Figure in dollars
determined for tax purposes by an assessor which reflects a
property's worth and which, unless exempt, is used to compute a tax
dollar obligation by multiplying it by a tax rate. This is often
confused with the term appraisal.
- When a home
is sold, the seller may be able to transfer the mortgage to the new
buyer. 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. Assumability
can help you attract buyers if you sell your home. It is common for
FHA an VA Loans.
- A home that
has one or more common walls adjoining another home. Condominiums,
townhomes and row houses are attached homes.
fixed-rate loan which involves smaller payments for a certain period
of time and one large payment for the entire amount of the
outstanding principal. Usually they have terms of 5 and 7 years.
- A mortgage
which requires a payment for half the monthly amount every two
weeks. As a result the loan amortizes much faster than a loan with
normal monthly payments. The result is as if one extra monthly
payment were made each year. With this, 30 year fixed rate loan
will be paid off in approximately 22.7 years. You may achieve the
same affect by making extra monthly principal payments.
- A mortgage
covering at least two pieces of real estate as collateral.
- Interim loan
to finance a buyers new residence if the buyer is unable to sell
his/her current residence first.
- Real estate
Line or Setback
Buffer distances from the ends and/or sides of the lot beyond which
construction may not extend. The building line may be established by a
filed plat of subdivision, by restrictive covenants in deeds or leases,
by building codes, or by zoning ordinances.
- The seller
pays an amount to the lender so that the lender can give you a lower
rate and lower payments, usually for an early period in an ARM. The
seller may increase the sales price to cover the cost of the buydown.
Buydowns can occur in all types of mortgages, not just ARMs.
- Limit on how
much the interest rate or the monthly payment can change, either at
each adjustment or during the life of the mortgage. All ARMs have
interest rate caps to protect you from enormous increases in monthly
A lifetime cap limits the interest rate increase
over the life of the loan. Lifetime caps can vary by lender, but
most ARMs have caps of 5% or 6%.
- A periodic
or adjustment cap limits how much your interest rate can
rise at one time. Generally, a 6 month ARM will have a cap of 1%
while a 1 year ARM will have a 2% cap.
- Periodic and
lifetime caps are quoted as two numbers as in 2/6 which would mean
that periodic cap is 2% and the lifetime cap is 6%. Examples:
1. The initial interest rate is 5.5%, the index is 8%, and the
margin is 2.875%,
then the new interest rate = 8% + 2.875% = 10.875%.
If the lifetime cap is 5% then
the actual new interest rate will be 5.5% + 5% = 9.5%.
- 2. The initial
interest rate is 6%, the index is 7%, and the margin is 3%,
then the new interest rate = 7% + 3% = 10%.
But, If the periodic cap is 1% then
the actual new interest rate will be 6% + 1% = 7%.
- ARMs which have an
initial fixed period -- 30/3/1, 30/5/1, 30/7/1 and 30/10/1 -- can
have also first adjustment cap. It limits the
interest rate you will pay the first time your rate is adjusted.
These ARMs are quoted as three numbers as in 5/2/5 which would mean
that the first adjustment cap is 5%, adjustment cap thereafter is
2%, and the lifetime cap is 5%.
- Two-Step loans --
5/25 and 7/23 -- have only one adjustment after the first five or
seven years of its term. They are quoted with a single first
- Profit earned from
the sale of real estate. The new tax code may not tax the the first
$500,000 of profits from the sale of a home (married filing jointly,
$250,000 single) if you have occupied the home for at least 2
years. Consult your tax advisor.
Cash out refinance
A refinance on a home that you own where
the loan amount has extra money left after paying off the existing
purchase money mortgages and closing costs. Usually 1-2% of the loan
amount can be given to you at closing loan before is it considered a
cash out refinance.
Certificate of Eligibility
- A document issued
by the U.S. Department of Veterans Affairs. It is required when
applying for VA loans.
Certificate of Occupancy
- Document which is
issued by local governments that states a property meets the local
building standards for occupancy. Required for new construction and
sometimes also for the sale of an existing property.
of Reasonable Value
- An appraisal
by a VA approved appraiser which estimates the property's current
- A title/deed
that free of
- The numerous
expenses which buyers and sellers normally incur to complete a
transaction in the transfer of ownership of real estate. These costs
are in addition to price of the property and are items prepaid at the
closing day. This is a typical list:
Recording Deed and Mortgage
Attorney's Fee (optional)
Endorsements to Title
1% PA Transfer Tax
Pre-Paid Property tax, sewer, water, trash, adjustments
Points and other loan fees
Homeowners/Hazard Insurance Policy for 1st year
agreement of sale negotiated previously between the buyer and the seller
may state in writing who will pay each of the above costs.
- The day on which
the formalities of a real estate sale are concluded. The deed is
generally prepared for the closing by an attorney and this cost
charged to the buyer. The buyer signs the mortgage, and closing
costs are paid. The final closing merely confirms the original
agreement reached in the agreement of sale.
outstanding claim or encumbrance which adversely affects the
marketability of title.
- Fee paid to
a real estate agent or broker by the seller as compensation for
finding a buyer and completing the sale. Usually it is a percentage
of the sale price--6 to 7 percent on houses, 10 percent on land.
- A written
agreement between a lender and a borrower to loan money on specific
terms or conditions.
ownership of a dwelling unit and an individual interest in the
common areas and facilities which serve the multi-unit project.
- A short term
loan to pay for the construction of buildings or homes. These loans
usually provide periodic disbursements to the builder as each stage
of the building is completed. Generally followed by long term
financing called a "take out" loan issued upon completion of
- A condition
put on an offer to buy a home; such as the perspective buyer making
an offer contingent on his or her sale of a present home, or being
approved for a mortgage.
- Any mortgage loan
not insured by HUD or guaranteed by the Veterans' Administration. It
is subject to conditions established by the lending institution,
Fannie Mae, Freddie Mac, and State statutes
- Some ARMs
come with options to convert them to a fixed rate mortgage during a
given time period without having to go through a
refinancing, which could cost up to 5 percent or 6 percent of the
loan amount. For example popular conversion options for 1 year
treasury-indexed ARMs include:
- 1. option to
convert on the third, fourth, or fifth adjustment date, i.e. during
the 37th, 49th and 61st months of the loan.
- 2. option to
convert during the first five years on the adjustment date, i.e.
during the 13th, 25th, 37th, 49th and 61st months of the loan.
- The interest
rate or points may be somewhat higher for a convertible ARM. Also, a
convertible ARM may require a small fee at the time of conversion.
- The transfer
of title to the property from one party to another.
- An apartment
building or a group of dwellings owned by a corporation, the
stockholders of which are the residents of the dwellings. It is
operated for their benefit by their elected board of directors. In a
cooperative, the corporation or association owns title to the real
estate. A resident purchases stock in the corporation which entitles
him to occupy a unit in the building or property owned by the
cooperative. While the resident does not own his unit, he has an
absolute right to occupy his unit for as long as he owns the stock.
- A report
documenting the history of how you paid back the companies you have
borrowed money from, or how you have met other financial
- A formal written
instrument by which title to real property is transferred from one owner
to another. The deed should contain an accurate description of the
property being conveyed, should be signed and witnessed according to the
laws of the State where the property is located, and should be delivered
to the purchaser at closing day. There are two parties to a deed: the
grantor and the grantee. (See also
Deed of Trust,
Warranty Deed, Quitclaim Deed, and
Special Warranty Deed)
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: the borrower, the trustee, and the lender, (or beneficiary).
In such a transaction, the borrower transfers the legal title for the
property to the trustee who holds the property in trust as security for
the payment of the debt to the lender or beneficiary. If the borrower
pays the debt as agreed, the deed of trust becomes void. If, however, he
defaults in the payment of the debt, the trustee may sell the property
at a public sale, under the terms of the deed of trust. In most
jurisdictions where the deed of trust is in force, the borrower is
subject to having his property sold without benefit of legal
proceedings. A few States have begun in recent years to treat the deed
of trust like a mortgage.
- Failure to make
mortgage payments as agreed to in a commitment based on the terms and at
the designated time set forth in the mortgage or deed of trust. It is
the mortgagor's responsibility to remember the due date and send the
payment prior to the due date, not after. Generally, thirty days after
the due date if payment is not received, the mortgage is in default. In
the event of default, the mortgage may give the lender the right to
accelerate payments, take possession and receive rents, and start
foreclosure. Defaults may also come about by the failure to observe
other conditions in the mortgage or deed of trust.
- When the monthly
payments do not cover all of the interest cost, the unpaid interest is
deferred by adding it to the loan balance.
- Personal claim
against the debtor when the sale of foreclosed property does not yield
sufficient proceeds to pay off the mortgages.
- Decline in value
of a house due to wear and tear, adverse changes in the neighborhood, or
any other reason.
- 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.
- 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.
- The amount of
money to be paid by the purchaser to the seller upon the signing of the
agreement of sale. The agreement of sale will refer to the downpayment
amount and will acknowledge receipt of the downpayment. Downpayment is
the difference between the sales price and maximum mortgage amount. The
downpayment may not be refundable if the purchaser fails to buy the
property without good cause. If the purchaser wants the downpayment to
be refundable, he should insert a clause in the agreement of sale
specifying the conditions under which the deposit will be refunded, if
the agreement does not already contain such clause. If the seller cannot
deliver good title, the agreement of sale usually requires the seller to
return the downpayment and to pay interest and expenses incurred by the
- A clause in the Deed
of Trust or Mortgage that states that the entire loan is due upon the
sale of the property.
- The deposit
money given to the seller or his agent by the potential buyer upon the
signing of the agreement of sale to show that he is serious about buying
the house. If the sale goes through, the earnest money is applied
against the downpayment. If the sale does not go through, the earnest
money will be forfeited or lost unless the binder or offer to purchase
expressly provides that it is refundable.
- A right-of-way
granted to a person or company authorizing access to or over the owner's
land. An electric company obtaining a right-of-way across private
property is a common example.
- An obstruction,
building, or part of a building that intrudes beyond a legal boundary
onto neighboring private or public land, or a building extending beyond
the building line.
- A legal right or
interest in land that affects a good or clear title, and diminishes the
land's value. It can take numerous forms, such as zoning ordinances,
easement rights, claims, mortgages, liens, charges, a pending legal
action, unpaid taxes, or restrictive covenants. An encumbrance does not
legally prevent transfer of the property to another. A title search is
all that is usually done to reveal the existence of such encumbrances,
and it is up to the buyer to determine whether he wants to purchase with
the encumbrance, or what can be done to remove it.
Credit Opportunity Act
discrimination in any aspect of a credit transaction on the basis of
race, religion, age, color, national origin, receipt of public
assistance funds, sex, or marital status.
- The value of a
homeowner's unencumbered interest in real estate. Equity is computed by
subtracting from the property's fair market value the total of the
unpaid mortgage balance and any outstanding liens or other debts against
the property. A homeowner's equity increases as he pays off his mortgage
or as the property appreciates in value. When the mortgage and all other
debts against the property are paid in full the homeowner has 100%
equity in his property.
- Funds paid by one
party to another (the escrow agent) to hold until the occurrence of a
specified event, after which the funds are released to a designated
individual. In FHA mortgage transactions an escrow account usually
refers to the funds a mortgagor pays the lender at the time of the
periodic mortgage payments. The money is held in a trust fund, provided
by the lender for the buyer. Such funds should be adequate to cover
yearly anticipated expenditures for mortgage insurance premiums, taxes,
hazard insurance premiums, and special assessments. See also Escrow
discrimination in housing sales or loans on the basis of race, religion,
color, national origin, sex, familial status, or handicap.
Rights under the Fair Housing Act.
Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
stockholder-owned corporation chartered by Congress to create a
continuous flow of funds to mortgage lenders in support of homeownership
and rental housing. Freddie Mac purchases
single-family and multifamily residential mortgages from lenders and
packages them into securities that are sold to investors.
Housing Administration (FHA)
- A part of the U.S.
Department of Housing and Urban Development (HUD). FHA assists 1st-time
home buyers and low to moderate income borrowers who may not be able to
meet down payment requirements for conventional loans by providing
mortgage insurance to private lenders. It also insures loans for home
improvements and buying manufactured/mobile homes. These programs
operate through FHA approved lending institutions and their
correspondents, such as Allegiance mortgage..
National Mortgage Association (FNMA, Fannie Mae)
stockholder-owned federally chartered corporation.
Fannie Mae purchases residential home loans from mortgage lending
institutions, packages the mortgages into securities and sells the
securities to investors. They are the largest source of residential
mortgage funds in the USA.
- FHA Loan
- A loan insured
by the Federal Housing Administration open to all qualified home
purchasers. Interest rates on FHA loans are generally market rates,
while down payment requirements are lower than for conventional loans.
FHA loans cannot exceed the statutory limit.
- A mortgage that
has priority as a lien over all other mortgages.
- Insurance that
compensates for physical property damage resulting from flooding. It is
required for properties located in federally designated flood areas.
- A legal term
applied to any of the various methods of enforcing payment of the debt
secured by a mortgage, by taking and selling the mortgaged property, and
depriving the mortgagor of possession.
- For sale by owner.
General Warranty Deed
- A deed which
conveys not only all the grantor's interests in and title to the
property to the grantee, but also warrants that if the title is
defective or has a "cloud" on it (such as mortgage claims, tax liens,
title claims, judgments, or mechanic's liens against it) the grantee may
hold the grantor liable. Buyers have used this as an alternate to
purchasing title insurance.
Government National Mortgage Association
(GNMA, Ginnie Mae)
- A government
owned corporation within the HUD that helps to finance
government-assisted housing programs. Ginnie Mae guarantees securities
backed by pools of mortgages. The mortgages are insured by FHA, or
guaranteed by VA, or by the Rural Housing Service (RHS). Ginnie Mae
securities are bought and sold through financial institutions that trade
Graduated Payment Mortgage
- A type of a
mortgage that has lower payments for up to 5 years initially and then
payments increase each year until the loan is fully amortized. Can
result in negative amortization.
- That party in
the deed who is the buyer or recipient.
- That party in the deed
who is the seller or giver.
- Protects against
damages caused to property by fire, windstorms, and other common
- U.S. Department
of Housing and Urban Development. Office of Housing/Federal Housing
Administration within HUD insures home mortgage loans made by lenders
and sets minimum standards for such homes.
- A standard form that
shows all charges imposed on borrowers and sellers in connection with
the settlement. RESPA allows the borrower to request to see the
HUD-1 Settlement Statement one day before the actual settlement.
- That portion of
a borrower's monthly payments held by the lender or servicer to pay for
taxes, hazard insurance, mortgage insurance, lease payments, and other
items as they become due.
- A published measure of
economic conditions usually relative to other financial instruments such
as Treasury notes or Treasury bills. The lender uses a particular index
to calculate the interest rate on an adjustable rate mortgage (ARM) by
adding a fixed margin to the index. The most common indexes are:
Maturity Treasury (CMT)
- Treasury Bill
Treasury Average (MTA)
- 11th District
Cost of Funds Index (COFI)
- London Inter
Bank Offering Rates (LIBOR)
of Deposit (CD) Indexes
- Prime Rate
A charge paid for borrowing money. See
- Joint tenancy is
one of the methods available for two or more people to hold title to
real estate or personal property. It includes a right of survivorship,
meaning that on the death of one joint tenant, his/her interests
transfer to the remaining joint tenants.
- A loan that
conforming loan limits
established by Fannie
Freddie Mac. It
has interest rates a little higher than conforming loan.
Paid Mortgage insurance (LPMI)
- An alternative
to PMI. The lender will increase the interest rate instead of charging
PMI on loans with LTV's greater than 80%.
Read about different PMI options.
- A claim by one person
on the property of another as security for money owed. Such claims may
include obligations not met or satisfied, judgments, unpaid taxes,
materials, or labor. See also Special Lien
Loan-to-Value Ratio (LTV)
- The relationship
between the amount of the mortgage loan and the value of the real
property expressed as a percentage. For purchase loans the value of the
property is the appraised value or the purchase price, whichever is
less. For refinance loans the value is the appraised value on seasoned
properties (owned more than one year).
- A LTV of 90%
means that you are borrowing 90% of the property value. If a LTV exceeds
80%, Private Mortgage Insurance (PMI) -- that insures the lender in the
event a borrower defaults -- is generally required.
- Downpayment is
the difference between the purchase price and the mortgage amount.
- A lender's
promise to hold a certain interest rate and points for you, for a given
number of days, while your loan application is processed. If not locked,
the interest rates quoted to you may stay the same, decrease, or
increase from the day you apply for your mortgage. Lock-ins on rates
remove the risk of rising rates.
- However, a
locked-in rate could also prevent you from taking advantage of rate
decreases. If you think that rates will remain level or even go down,
you may choose to bet on interest rates decreasing by electing to float
until you go to closing. It is a gamble.
- Lock-ins of
30-60 days are common. If your lock-in period expires before you go to
closing, you might lose the interest rate and the number of points you
had locked-in. You may ask lender for a longer lock-in period. But bear
in mind that lenders may charge you a fee for extending the lock-in
period. Request information from the lender regarding lock procedures.
- A title that is
free and clear of objectionable liens, clouds, or other title defects. A
title which enables an owner to sell his property freely to others and
which others will accept without objection.
- The number of
percentage points the lender adds to the
index rate to
calculate the ARM interest rate at each adjustment. It is typically
between 2.5 to 3% on a conforming loan.
may have margins of 5% to 6%.
- A lien or claim
against real property given by the buyer to the lender as security for
money borrowed. Under government-insured or loan-guarantee provisions,
the payments may include escrow amounts covering taxes, hazard
fees, and special assessments. Mortgages generally run from 10 to 30
years, during which the loan is to be paid off.
- A company who is
a direct lender but does not retain loans they have made. They use a
line of credit to fund loans and immediately sell the mortgage, at
closing or within a matter of days, to another lender at which time the
borrower will receive a "Goodbye Letter" announcing who they will be
sending payments to. Mortgage Bankers do not
- A person (not an
employee of a lender) who brings a borrower and a lender together to
obtain a federally-related mortgage loan. A mortgage broker has access
to a variety of lenders and offers the most choice in loan programs.
1999 saw Mortgage Brokers with a 70% market share of all originations.
- A written notice
from the bank or other lending institution saying it will advance
mortgage funds in a specified amount to enable a buyer to purchase a
house by a certain date.
Insurance Premium (MIP)
- The payment made
by a borrower to the lender for transmittal to HUD to help defray the
cost of the FHA mortgage insurance program and to provide a reserve fund
to protect lenders against loss in insured mortgage transactions. In FHA
insured mortgages this represents an annual rate of 1/2% paid by the
mortgagor on a monthly basis.
- A written
agreement to repay a loan. The agreement is secured by a mortgage,
serves as proof of an indebtedness, and states the manner in which it
shall be paid. The note states the actual amount of the debt that the
mortgage secures and renders the mortgagor personally responsible for
- Line of Credit.
A mortgage with a provision that permits borrowing additional money in
the future without refinancing the loan or paying additional financing
charges. Open-end provisions often limit such borrowing to no more than
would raise the balance to the original loan figure.
- The lender in a
- The borrower in
a mortgage agreement.
Listing Service (MLS)
- A service
offered to participating real estate brokers that lists available homes
for sale. The listings are published and distributed among the member
brokers to assist in sales efforts.
amortization typically only occurs when an ARM has a payment cap that
results in monthly payments not high enough to cover the interest due.
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.
- Loans that do
not comply with
Fannie Mae or
guidelines. These guidelines establish the maximum loan amount, down
payment, borrower credit and income requirements, and suitable
properties. Loans that does conform to these guidelines may be sold to
Fannie Mae or Freddie Mac.
Open End Mortgage
- A property purchase
transaction in which the property sellers provide all or part of the
financing by means of holding a second mortgage. Minimum duration for
this "seller second" is 5 years with most lenders.
- A separately
assessed for tax purposes lot or piece of real property.
Interest, Taxes and Insurance.
These components are usually all included in the monthly mortgage
payment unless escrows are waived.
- A project or
subdivision that includes common property that is owned and maintained
by a homeowners' association for the benefit and use of the individual
PUD unit owners.
- A map or chart
of a lot, subdivision or community drawn by a surveyor showing boundary
lines, buildings, improvements on the land, and easements.
- Sometimes called
"discount points". A point is one percent of the amount of the
mortgage loan amount. (eg: For a $50,000 loan, one point is $500).
Points are interest paid in advance and allow a borrower to buy a lower
mortgage rate, which results in a lower payment. For borrowers who are
not able to cover the cost of points in addition to the other costs of
buying a home, or for those who do not plan to stay in the house for
long, 0 points are preferred. Buyers are prohibited from paying points
on HUD or VA guaranteed loans (sellers can pay, however). On a
conventional mortgage, points may be paid by either buyer or seller or
split between them.
- Power of
- A legal document
that authorizes another person to act on oneࢥhalf. A power of
attorney can grant complete authority or can be limited to certain acts
and/or certain periods of time.
- Payment of
mortgage loan, or part of it, before due date. Mortgage agreements
sometimes restrict the right of prepayment either by limiting the amount
that can be prepaid in any one year or charging a penalty for
prepayment. Lenders who impose prepayment penalties will charge
borrowers a fee if they wish to repay part or all of their loan in
advance of the regular schedule. The Federal Housing Administration does
not permit such restrictions in FHA insured mortgages. Prepayment
penalties are typically only found on bad credit mortgage loans.
- The basic
element of the loan as distinguished from interest and mortgage
insurance premium. In other words, principal is the amount upon which
interest is paid.
Private Mortgage Insurance
- An insurance
policy the borrower buys to protect the lender from non-payment of the
loan. This is required for loans where the borrower puts less than 20%
down. With a new law that took effect in 1999, PMI will automatically
be removed when the loan is paid down to 78% LTV, subject to the
borrowers good credit history. Read
about different PMI options.
- The allocation of
expenses, such as taxes between buyer and seller at closing based on the
number of days the property is owned during the month of closing. The
seller has prepaid taxes for a year, and is reimbursed for that part of
the year he will not own the house.
Underwriting, Courier and Document Fees
- Charges for the
lender's services associated with making the loan.
Agreement of Sale
- A deed which
transfers whatever interest the maker of the deed may have in the
particular parcel of land typically for no sales price. A quitclaim deed
is often given after a divorce to remove one person from the deed or for
family transactions. By accepting such a deed the buyer assumes all the
risks. Such a deed makes no warranties as to the title, but simply
transfers to the buyer whatever interest the grantor has. See
- Lenders use certain
guidelines to determine a potential borrower's credit-worthiness. The
two guidelines used are the housing and debt ratios. They are expressed
as two numbers like 28/38 where 28 would be the housing ratio and 36
would be the debt ratio. It means that:
Your housing expenses (PITI)
should not exceed 28 percent of your gross monthly income and
2. Housing expenses plus long- term debt should not
exceed 38 percent of your gross monthly income.
The housing expenses
include monthly mortgage principal, interest payments, property taxes
and homeowner੮surance. There may be other expenses, such as
condominium fees, homeowners fees, special assessments, etc., that are
included. Long-term debt is defined as monthly expenses extending more
than 10 months into the future. The qualifying ratios may vary but 40%
is common (40/40 ratio).
Please note that
qualifying ratios are only a rough guidelines and underwriters consider
many variables in their analysis. Many times, borrowers fall outside the
guidelines, but have strong compensating factors that reflect low credit
risk. Some compensating factors are history of savings, long-term job
stability, a substantial down payment or excellent credit history will
influence the decision to approve or deny a particular loan with ratios
up to 30/50% common.
Real Estate Broker
- A middle person
or agent who buys and sells real estate for a company, firm, or
individual on a commission basis. The broker does not have title to the
property, but generally represents the owner.
Estate Settlement Procedures Act (RESPA)
- A consumer
protection law designed to help consumers be more informed with the home
buying process. It requires that borrowers receive disclosures at
various times. RESPA also prohibits referral fees and similar acts that
increase the cost of settlement services.
- The public
official who keeps records of transactions that affect real property in
the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."
- The process of
the same mortgagor paying off one loan with the proceeds from another
- The cancellation
of a contract. When you use your home as collateral for a refinance or
second mortgage, you generally have the right to cancel the credit
transaction within three business days.
- The amount of
money left in a borrowers possession after settlement. Typically the
guidelines call for 2 months
PITI to be in
reserves. 401K type plans count towards reserves. The borrower needs
to show they have funds in an account in the event of an emergency
(furnace breaks). These funds can remain in vested in a 401k or stocks
and still be counted to qualify.
restrictions limiting the use of real property. Restrictive covenants
are created by deed and may "run with the land," binding all subsequent
purchasers of the land, or may be "personal" and binding only between
the original seller and buyer. Restrictive covenants that run with the
land are encumbrances and may affect the value and marketability of
title. Restrictive covenants may limit the density of buildings per
acre, regulate size, style or price range of buildings to be erected.
- A special type
of home loan that lets elderly homeowners convert the equity in their
home into regular payments of cash.
- Right of
- In joint tenancy, the
right of survivors to acquire the interest of a deceased joint tenant.
Agreement of Sale
Home (or Vacation Home)
- This home is not
rented and is occupied occasionally by the owners. It is typically in a
resort area not in close proximity to the borrowers primary residence.
- A mortgage in
addition to the first mortgage. Home equity loans, credit lines, home
improvement loans are second mortgage loans. Second mortgages are
subordinate to the first one. Second mortgage loans are non-conforming
loans, so they usually carry a higher interest rate, and they often are
for a shorter time.
additional money toward the down payment. If it is acceptable, usually
subject to a maximum combined
Secondary financing is used as an alternative to obtaining Private
Mortgage Insurance and to avoid Jumbo loan rates.
- The collection
of payments, handling your escrow accounts and management of operational
procedures that a lender performs.
- Set Back
- Regulates the
distance from the lot line to the point where improvements may be
- The meeting between
the related parties of the mortgage where the mortgage documents are
executed. Here the property ownership is transferred to the buyer on a
- Residential loan
in which a borrower receives a below-market interest rate in return for
which the lender receives a specified share of the future appreciation
in the value of the property.
- A special tax
imposed on property, individual lots or all property in the immediate
area, for road construction, sidewalks, sewers, street lights, etc.
- A lien that
binds a specified piece of property, unlike a general lien, which is
levied against all one's assets. It creates a right to retain something
of value belonging to another person as compensation for labor,
material, or money expended in that person's behalf. In some localities
it is called "particular" lien or "specific" lien. (See lien.)
Special Warranty Deed
- A deed in which the
grantor conveys title to the grantee and agrees to protect the grantee
against title defects or claims asserted by the grantor and those
persons whose right to assert a claim against the title arose during the
period the grantor held title to the property. In a special warranty
deed the grantor guarantees to the grantee that he has done nothing
during the time he held title to the property which has, or which might
in the future, impair the grantee's title.
- A mortgage for
someone who does not meet conventional guidelines. The borrower
may have damaged credit, own too many properties, of have a
debt-to-income ratio that exceeds the conforming loan guidelines. These
loans are considered to have a higher risk of default and hence carry a
higher interest rate than conforming loans.
- A map or plat made by
a licensed surveyor showing the results of measuring the land with its
elevations, improvements, boundaries, and its relationship to
surrounding tracts of land. A survey is often required by the lender for
construction loans to assure them that a building is actually sited on
the land according to its legal description.
- The assessed
value of a parcel against which the tax rate is applied to compute the
tax due. In case of a partial exemption, the exempt amount is subtracted
from the assessed value in order to determine the taxable assessed
- Teaser Rate
- A low initial
interest rate on a mortgage.
- The rights of
ownership and possession of particular property. In real estate usage,
title may refer to the instruments or documents by which a right of
ownership is established (title documents), or it may refer to the
ownership interest one has in the real estate.
- Protects lenders
or homeowners against loss of their interest in property due to legal
defects in title. Insurance benefits will be paid only to the "named
insured" in the title policy, so it is important that an owner purchase
an "owner's title policy", if he desires the protection of title
commitment of a title insurance company to insure title to the property
under the conditions stated in the binder.
Search or Examination
- A check of the
title records, generally at the local courthouse, to make sure the buyer
is purchasing a house from the legal owner and there are no liens, or
other claims or outstanding restrictive covenants filed in the record,
which would adversely affect the marketability or value of title.
- In PA the buyer
and seller each pay 1% state tax on the sales price of the real estate,
unless stated otherwise in the sales contract. In Philadelphia County,
the tax rate is 2% for each the buyer and seller.
- A party who is
given legal responsibility to hold property in the best interest of or
"for the benefit of" another. The trustee is one placed in a position of
responsibility for another, a responsibility enforceable in a court of
law. See Deed of
Truth-In-Lending Act ( TIL, also called Regulation Z)
- Under this act a
lender is required to provide you with a disclosure estimating the costs
of the loan you have applied for, including your total finance charge
and the Annual Percentage Rate (APR) within three business days
of your application for a loan.
- With this type of loan
homebuyers get a fixed rate loan at a slightly lower interest rate for a
fixed period of time (most often for 5, 7, or 10 years) and then the
interest rate is adjusted to fit market conditions at that time. After
that adjustment, the mortgage maintains a fixed rate for the remaining
- A process of deciding
whether to make a loan based on your credit reputation, income, debt,
appraised value of the house and other factors.
- VA Loan
- A mortgage for
veterans and service persons guaranteed by the Department of Veterans
Affairs (VA), requiring very low or no downpayments and with generous
requirements for qualification.
- A local
government authority's specifications for the use of property in certain
- The acts of an
authorized local government establishing building codes, and setting
forth regulations for property land usage.