Mortgage Glossary | Loan Dictionary | Mortgage and Home Loan Terms

America Family Mortgage Broker and Lending

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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 for breach of other conditions of the mortgage.

Adjustable Rate Mortgage (ARM) - The recently authorized name for residential mortgage loans having a periodically adjustable interest rate offered by nationally chartered banks. The adjustable rate mortgage is based off of an index and margin.

Agreement of Sale - Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A 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.

Amortization - A plan for paying off a financial obligation by making periodic installment payments over a set period of time, at the end of which the loan balance is zero. Often mortgages have a 30 year amortization, requiring the borrower to make 360 equal monthly payments.

Annual (Gross) Income - Total income (earned, unearned and asset income) anticipated to be received by all persons who currently reside or intend to reside in a program assisted -unit for the coming 12 -month period. When determining whether a household is income eligible, local governments, participating jurisdictions and project owners must use one of the following three definitions of annual income:

(1) annual income as defined at 24 CFR section 5.609 (except when determining the income of a homeowner for an owner -occupied rehabilitation project, the value of the homeowner’s primary residence may be excluded from the calculation of net family assets); or

(2) annual income as reported under the Census long -form for the most recent available decennial Census; or

(3)adjusted gross income as defined for purposes of reporting under Internal Revenue Service (IRS) Form 1040 series for individual federal annual income tax purposes.

Appraisal - In real estate, the estimate of the value of real property. The most common method for single family units is the sales -comparison approach in which the estimate of value is obtained directly from experiences in the real estate market (see “comparable” below).

Appreciation - Increase in the value of property due to improvements made to the property or surrounding area/neighborhood by the owner or other parties, including the government and/or more general market forces. Commonly, and incorrectly, used to describe an increase in value through inflation.

Articles of Incorporation - Legal document submitted to a designated officer of the state for permission to commence business as either a for -profit or non -profit corporation. The articles of incorporation, or charter, state the purpose, rights and duties of the corporation.

Assets - Cash or non -cash item that can be converted to cash. Under most federally and state funded housing programs, the income from an asset, either actual or imputed, is included in a family’s total household income.

Assumption of Mortgage - An obligation undertaken by the purchaser of property to be personally 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.

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.

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)

Building Line or Setback - 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.

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.

Closing Costs - 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:

Buyer's and Seller's Expenses:
Documentary Stamps on Notes Cost of Abstract Recording Deed and Mortgage Documentary Stamps on Deed Escrow Fees Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Inspection Escrow Fees
Survey Charge Attorney's Fee
Courier Fees
The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.

Closing - The final procedure in a real estate sale, in which property ownership is transferred in exchange for an agreed upon payment.

Cloud (On Title) - An outstanding claim or encumbrance which adversely affects the marketability of title.

Collateral - Assets pledged to secure a loan.

Commission - Money 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% on houses, 10% on land.

Comparable - In the sales -comparison appraisal method, a property that closely resembles the property for which a value is being estimated. A comparable should closely resemble the subject property with respect to property rights, conditions of sale, market conditions, financing terms, location, and physical characteristics.

Compliance - The act of meeting requirements and conditions specified in statutes, rules and/or federal laws.

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 - Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi -unit project. Florida has many condominium projects.

Contractor - In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Conventional Mortgage - A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between states. (States have various interest limits.)

Credit Underwriting - A process used by lenders (including government lenders) to evaluate the feasibility of a rental development, i.e., whether project income will be sufficient to pay the loan and operating expenses.

Deed - A legal instrument that transfers property ownership from one party to another.

Default - 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.

Deferred Payment Loan - Funds provided to a borrower under terms that calls for repayment to be delayed for a certain length of time, until certain circumstances change, or a certain threshold is met. In housing programs, deferred payment loans are often used as a recapture mechanism. In home ownership programs the loans often become due when the assisted family sells the home. Under rental programs the loans often become due if the affordability requirements are breached. In most housing programs these loans have an interest rate of zero percent; in some communities interest does accrue.

Depreciation - Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

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.

Down payment - 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 down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment 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 down payment and to pay interest and expenses incurred by the purchaser.

Earnest Money - 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 down payment. 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.

Easement Rights - 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.

Encroachment - 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.

Encumbrance - 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.

Equity - 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.

Escrow - 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.

Fair Housing Act - The Fair Housing Act makes it illegal to deny housing, refuse to rent, sell, or negotiate, or offer different terms and considerations because of race, color, religion, sex, national origin, handicap, or familial status. If you suspect violation of the Fair Housing Act or want more information, you may contact the U.S. Department of Housing and Urban Development, Fair Housing, 451 7th Street, SW, Washington, D.C. 20410, 1 -800 -669 -9777.

FHO - Fair Housing Ordinance - A FHO is required of all localities participating in federal programs. It makes illegal any discrimination based on race, color, ancestry, religion, sex, national origin, familial status or handicap.

Financial Statements - Written record of the financial status of an individual, organization or governmental entity. Statements commonly include income statement, balance sheet, cash flow statement, and if the organization is a non -profit, a funds balance statement.

Financing Fee - money charged by a lender to originate a loan. The fees are based on a percentage of the loan amount, and one point is equivalent to 1 percent.

Foreclosure - The legal process a lender uses to exercise its right to force the sale of a property to gain repayment of mortgage debt. Generally, lenders exercise this right when a borrower has failed to make timely payments.

Front -End Ratio - (i.e., income ratio) A calculation used by the lender to determine if an applicant’s income is sufficient to afford the monthly payment. It is calculated by taking the monthly mortgage payment (principal, interest, taxes and insurance) and dividing it by the gross monthly income of the applicant. The acceptable ratio for affordable housing is between 30 -35%. In other words, no more than 30 -35% of the income should be set aside for the monthly mortgage payment.

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.

Grantee - That party in the deed who is the buyer or recipient.

Grantor - That party in the deed who is the seller or giver.

Hazard Insurance - Protects against damages caused to property by fire, windstorms, and other common hazards.

HUD - 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.

Interest - A charge paid for borrowing money. (See Mortgage Note)

Liabilities - A general term encompassing all types of debts and obligations.

Lien - Recorded claim against a property whereby the property is security for a debt. Under certain circumstances, the holder of the lien is entitled to have the property sold to satisfy the debt. A lien is an encumbrance against the property.

Loan - Loans are often referred to as debt financing and must be repaid according to a fixed payment schedule, generally with interest. Use of a deferred payment loan is common in affordable housing. In a deferred payment loan, funds provided to a borrower under terms that calls for repayment to be delayed for a certain length of time, until certain circumstances change, or a certain threshold is met. In housing programs, deferred payment loans are often used as a recapture mechanism. In home ownership programs the loans often become due when the assisted family sells the home. Under rental programs the loans often become due if the affordability requirements are breached. In most housing programs these loans have an interest rate of zero percent; in some communities interest does accrue.

Loan Guarantees - A pledge by a third party that, in case of default by the borrower, promises to repay all or a portion of the borrowed amount. State and local governments and non -profit intermediaries are often sources of loan guarantees, with the Federal Housing Administration (FHA) being one of the most well known.

Loan-To-Value Ratio - The loan amount(s) as a percentage of the property’s appraised value or sales price, whichever is less. For example, a loan amount of $57,000 on a home that has a sales price of $60,000 has a 95 percent loan -to -value ratio (57,000/60,000). A lender will use a loan -to -value ratio to determine the maximum amount it will lend on a property.

Marketable Title - 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.

Market Value - The price a property would sell for in a competitive market when there has been a normal offering time, no coercion, arms -length bargaining, typical financing, and informed buyer and sellers.

Mortgage - A temporary and conditional pledge of property to a creditor as security for the repayment of a debt. The borrower (mortgagor) retains possession and use of the property.

Mortgage Commitment - 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.

Mortgage Insurance Premium - 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 one half of one percent paid by the mortgagor on a monthly basis.

Mortgage Note - 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 repayment.

Mortgage (Open End) - 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.

Mortgagee - The lender in a mortgage agreement.

Mortgagor - The borrower in a mortgage agreement.

NOI -Net Operating Income - Gross profits minus operating expenses and taxes.

Non-profit Corporation - A corporation established under state law for purposes other than making profits that would be distributed to the owners, directors, members or officers.

Plat - A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Points - Sometimes called "discount points." A point is one percent of the amount of the mortgage loan. For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on his loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on HUD or Veterans' Administration guaranteed loans (sellers can pay, however). On a conventional mortgage, points may be paid by either buyer or seller or split between them.

PMI - Private Mortgage Insurance (also referred to as MI) - Coverage that, in instances of default, guarantees a lender the partial payment of an outstanding loan balance. Traditionally, lenders require PMI in instances where the loan to value ratio is higher than 80 percent, however, lenders have been known to waive this requirement under their affordable housing programs. PMI premiums are included in a borrower’s monthly mortgage payments. The amount can range anywhere from $30 -$50 per month, depending in the loan amount. The insurance can be discontinued when an appraisal shows that the loan to value ratio has dropped below 80 percent. The cost of such an appraisal is the responsibility of the borrower.

Prepayment - Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.

Principal - The currently unpaid balance of a loan, not including interest.

Purchase Agreement - See Agreement of Sale.

Quitclaim Deed - A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. 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 Deed.)

back to top

RD – Rural Development (formerly known as Farmers Home Administration (FmHa) - Provides funding for mainly rural housing programs. Sometimes used by local governments to supplement CDBG projects. The state RD office is located in Gainesville. Initial inquiries should be made at the local RD office. See federal government listing in local telephone directory for U.S. Department of Agriculture or resources section of handbook.

Real Estate Broker - A middle man 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.

Real Property - Land, including all things permanently attached to the land, such as buildings and infrastructure, commonly referred to as appurtenances.

Reconstruction - Rebuilding of a structure, usually on the same foundation as the existing housing which will be demolished.

Refinancing - The process of the same mortgagor paying off one loan with the proceeds from another loan.

Rehabilitation - The alteration, improvement or modification of an existing structure.

REO - Real Estate Owned - Property that is owned by a lender, usually acquired through a foreclosure, or through a deed in lieu of foreclosure.

Reserves - Funds held to pay future liabilities. Typical reserves include replacement reserve for major repairs, operating reserve for covering negative cash flow and contingency funds.

RESPA - Real Estate Settlement Procedures Act - RESPA requires that lenders give all borrowers of federally related mortgage loans an estimate of settlement costs and a HUD -prepared booklet with information about real estate transactions, settlement services, cost comparisons, and relevant consumer protection laws.

Restrictive Covenants - Private 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. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. 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, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

Secondary Market - Markets into which originating lenders sell their loans to investors who are seeking longer term investments (such as Fannie Mae).

Section 504 - Section of the Handicapped Accessibility/Architectural Barriers Act that requires all public buildings to be designed, constructed, or renovated to provide access for physically handicapped persons.

Subordinated (Secondary or Tertiary) Debt - If more than one lender has a lien on a property, the subordinated debt is paid after the debt of lien holders in superior (or first) positions.

Subsidy - Financial assistance in the form of government loans, grants, or other contributions that are used to make housing affordable.

Survey - 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 to assure him that a building is actually sited on the land according to its legal description.

Sweat Equity - The value of volunteer labor in producing affordable housing.

Tax - As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Title - As generally used, 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.

Title Insurance - Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a "mortgagee's title policy." 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 insurance.

Title 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, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record, which would adversely affect the marketability or value of title.

Trustee - 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 Trust.)

Unsecured - A loan that has no collateral pledged as security.

Veteran's Administration - A Federal agency that provides services for Veterans of US Army forces.

Variable -Rate Mortgage (VRM) - The VRM, like the renegotiable -rate mortgage, is one of new experiments with adjustable interest rate that have been supplanted by ARM authorizations. (See also adjustable rate mortgage.)

Zoning Ordinances - The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.

American Family Mortgage Lending | 915 Meadowlawn Drive N., Suite B, St. Petersburg, FL 33702 | 727 -209 -1411