Absolute Title refers to a clear and unequivocal ownership of property, devoid of any liens, judgments, or other encumbrances. It confirms that the titleholder has indisputable legal right to transfer ownership or use the property as they see fit.
Accelerated amortization refers to the practice of making larger payments towards the principal amount of a loan than is required by the contractual payment schedule. This results in shortening the loan term and reducing the total interest paid over the life of the loan.
An additional principal payment is a voluntary payment in addition to the established payment amount, applied directly against the loan principal. It helps in shortening the length of the loan term and reducing overall interest costs.
An after acquired clause is a provision in a mortgage loan that includes property subsequently purchased as security on the existing mortgage. This can complicate future financing and the restructuring of loans as additional acquired property becomes part of the original security.
An AML Adjustable Mortgage Loan is a type of mortgage that allows the interest rate to adjust periodically based on changes in a corresponding financial index that's associated with the loan. This type of mortgage is often chosen for its initial lower interest rates.
An amortization schedule is a detailed table laying out the periodic payments on a loan, breaking them down into interest and principal components, as well as showing the remaining balance after each payment. It is vital for understanding how a loan is paid off and the interest incurred over time.
Amortization Term refers to the period over which a loan or debt is scheduled to be paid off through periodic payments. The full amortization term dictates the timeline within which the principal and interest are settled.
An amortized loan is a type of loan where the borrower makes regular, scheduled payments that include both principal and interest, gradually reducing the balance over the loan's term.
Annual Debt Service refers to the total annual amount of principal and interest payments required to repay a loan.
The Annual Percentage Rate (APR) is the effective annual rate of interest for a loan, taking into account fees and other associated costs, disclosed as required by the Truth-in-Lending Act.
An Assumable Loan is a type of mortgage loan that allows a new purchaser to undertake the existing loan's obligation without changing its terms. This process bypasses the need for obtaining a new mortgage arrangement.
A biweekly loan is a mortgage that requires principal and interest payments at two-week intervals, leading to faster amortization and potentially significant interest savings compared to traditional monthly payments.
Borrowing capacity, also referred to as loan eligibility or credit capacity, determines the maximum amount of funds that an individual or entity can borrow from a lender. It is calculated based on factors such as monthly income, existing liabilities, credit score, and financial assets. Understanding borrowing capacity is critical for making informed financial decisions and optimizing loan approvals.
A Bridal Registry Mortgage is a unique financial tool, sponsored by the Federal Housing Administration (FHA), enabling soon-to-be-married couples to establish a registry where friends and family can contribute funds. These contributions can be used toward the down payment for an FHA-insured mortgage.
Capital structure refers to the composition of capital invested in a property, reflecting the interests of those who contributed both debt and equity capital.
A provision in an agreement that removes or excludes a particular portion of the property or obligations. Carve-outs can pertain to items in sales agreements, mortgages, or leases, potentially subjecting them to new terms or entirely exempting them from certain existing terms.
A Cash Flow Mortgage is a unique debt instrument where almost all income from property rental is used to pay the lender, typically with no interest rate specified.
A Certificate of Eligibility (COE) is issued by the Department of Veterans Affairs (VA) to indicate that the recipient is eligible for a home loan guaranteed by the agency.
A 'Closed Period' is a term in a mortgage agreement that prevents the borrower from prepaying the mortgage before the agreed-upon time period. This is commonly seen in commercial real estate mortgages but rarely in residential mortgages.
A co-mortgagor is an individual who signs a mortgage contract along with other parties, making them jointly responsible for repaying the loan and often granting them part ownership in the encumbered property.
In real estate, collateral refers to property or assets that a borrower offers to a lender as security for a loan. It reduces the lender’s risk by providing a way to recoup the loan amount if the borrower defaults.
In the context of real estate, 'commitment' refers to a pledge or promise, particularly regarding financial arrangements or agreements, such as a firm's agreement to provide a loan or mortgage to a borrower, thus ensuring the progress and completion of a transaction.
Compensating factors are criteria used to enhance a borrower’s creditworthiness by considering elements beyond the standard qualifying ratios. These factors help lenders make informed decisions when traditional metrics don't tell the whole story.
A conditional commitment is an agreement by a lender to provide a loan to a qualified borrower, subject to specific conditions that must be met. It serves as a binding commitment from the lender, provided that all pre-stipulated criteria and terms are satisfied.
A conforming loan is a mortgage that adheres to the guidelines set by government-sponsored entities Fannie Mae and Freddie Mac, including loan limits, borrower credit score, down payment, and debt-to-income ratio requirements.
A constant payment loan is a type of loan structured with equal periodic payments that ensure the loan is paid off by the end of its term. This type of loan is often used in mortgage financing.
The contract interest rate, also known as the face interest rate, is the interest rate specified in a loan agreement or mortgage note. This rate is used to calculate the periodic interest payments owed by the borrower throughout the loan term.
A Conventional loan is a type of mortgage that is not guaranteed or insured by any government agency. They typically require higher credit scores and a higher down payment than government-backed loans.
Credit (Mortgage) Scoring entails evaluating and rating a loan applicant based on their creditworthiness, impacting eligibility for standard or sub-prime mortgage terms.
Credit history refers to an individual's past behavior involving the taking out and repayment of loans and the use of revolving credit, such as credit cards. Credit histories are recorded by national credit reporting companies who issue credit reports. These reports are used by lenders to assess an applicant’s creditworthiness.
In the context of real estate, a debtor is a person or entity obligated to repay a debt. The debtor obtains a loan or other form of credit, typically used to purchase property, and is legally responsible for repaying the borrowed amount according to the agreed terms. The opposite of a debtor is a creditor, who provides the loan or credit.
A legal ruling issued by a court that determines the outstanding mortgage amount and mandates the sale of the property to pay off the debt.
A deed in lieu of foreclosure is a legal process where a borrower voluntarily transfers ownership of the property to the lender to avoid foreclosure proceedings.
A Deed of Reconveyance is a legal document issued by a mortgage holder indicating that the borrower has met the obligations of the mortgage and that the property title is transferred back to the borrower. It effectively nullifies the lender's claim to the property.
A Deed to Secure Debt is a type of mortgage used in many states where property is deeded to a lender to secure a debt, offering a streamlined foreclosure process.
Deferred charges refer to nontangible costs that are anticipated to provide value over multiple years. These costs are amortized over the period they are expected to provide value, for accounting or tax purposes.
Deferred payments refer to the payments that are postponed and scheduled to be made at a future date. Commonly utilized in various financial contexts, it allows borrowers to delay payments of the principal or interest.
A deficiency judgment is a court order that mandates the borrower to pay the outstanding balance on a loan when the collateral or security for that loan does not entirely cover the defaulted debt.
Delinquent refers to the state of having an unpaid amount after the due date and any grace period has passed. This term is often used before default is declared.
A discount in the context of real estate represents the difference between the face amount of an obligation and the amount advanced or received for the loan. It often indicates the sale of a loan or mortgage at less than its face value.
Discount points are fees paid directly to the lender at the time of the loan origination to reduce the interest rate and lower monthly mortgage payments. Frequently used in conventional, FHA, and VA loans, they offer borrowers flexibility in managing loan costs.
A discounted loan is a loan that is sold or traded for less than its face value due to market interest rate differences or inherent risk characteristics.
A down payment is the initial upfront portion of the total amount due on a property purchase. It is typically paid in cash, representing a percentage of the property's value.
An encumbrance is a claim, lien, charge, or liability attached to and binding real property, which may affect its transferability or decrease its value.
The Equal Credit Opportunity Act, enacted in 1974 and amended in 1976, is a federal law aiming to eliminate discrimination by lenders based on sex, marital status, age, race, color, religion, national origin, or receipt of public assistance.
Equity buildup refers to the gradual increase in a homeowner's equity or ownership stake in a property as debt principal is paid down through scheduled mortgage payments.
Equity represents the interest or value that an owner has in real estate over and above the liens or debts against it. It is calculated by subtracting the total liens from the market value of the property.
The Equity of Redemption is a legal concept in real estate that allows mortgagors to reclaim their foreclosed properties by paying off the outstanding mortgage debt and associated fees before the foreclosure sale is finalized.
Escrow analysis reviews and itemizes expenditures and contributions to an escrow account, primarily conducted at the end of a calendar year, to project the following year's required monthly payments.
An escrow payment is part of a borrower's monthly mortgage payment that is set aside in an account to cover property taxes and insurance when they become due.
Estoppel is a legal doctrine that stops a party from denying or asserting something that contradicts what they have previously established as the truth in the eyes of another party who has relied on that position or representation in good faith.
An exculpatory clause is a provision in a mortgage allowing the borrower to surrender the property to the lender without personal liability for the loan. This means the borrower can walk away from the property if unable to meet the mortgage obligations, without other personal assets being pursued for the debt.
Fee Simple Value refers to the market value of a property assuming it is owned outright, free of any leases or mortgages. It provides an estimate of the highest value that a property could achieve in an open market without any encumbrances.
The FHA 203(K) program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
Financing is the process of borrowing money to purchase property. Various methods exist to acquire the necessary funds, which can involve different types of loans and arrangements.
A Fixed Payment Mortgage is a loan secured by real property that features periodic payments of interest and principal that remain constant over the term of the loan. It is a subset of Fixed Rate Mortgages but maintains a fixed payment schedule throughout its term.
Foreclosure is the legal process through which a lender attempts to recover the remaining balance on a loan from a borrower who has stopped making payments, typically by selling the asset used as collateral.
The Full Amortization Term is the amount of time it will take for a mortgage to be fully paid off through periodic payments of principal and interest. It specifies the duration within which the loan balance will reach zero, taking into account both the repayment of principal and the interest charges.
A fully amortized loan is a type of loan repayment structure where regular payments of both principal and interest are made over the course of the loan term, resulting in the total loan being paid off by the end of the term.
Funding a loan involves the process of supplying the agreed-upon amount of money for a loan. After loan approval and commitment, the lender forwards the necessary cash at the closing stage.
A nominal fee charged by the Department of Veterans Affairs to those receiving a mortgage guaranteed by the VA, which helps to fund the VA loan program.
A guarantor is a third party to a lease, mortgage, or other legal instrument who guarantees performance under the contract. Guarantors play a critical role in helping individuals or businesses secure financing or lease agreements by providing an additional layer of security for the lender or landlord.
A home improvement loan, usually secured by a mortgage on the home, is used to pay for major remodeling, reconstruction, or additions to a residential property. It provides homeowners with the necessary funds to enhance and upgrade their living space.
A home loan, often synonymous with 'mortgage', is a type of loan specifically used for purchasing real estate property. The borrower is required to pay back the loan over time, typically with interest, and the property usually serves as collateral.
Homestead status is a legal protection provided to a homeowner's principal residence by some state statutes, which protects the home against certain judgments up to specified amounts.
Hypothecating is the act of pledging an asset as collateral to secure a loan without transferring the title or the asset itself to the lender.
Imputed interest is the interest that tax authorities assume to be paid on a loan, even if no actual interest payment has been made or if the interest rate is below market levels.
An installment sale is a sales method in which the seller receives payments over time and reports a portion of the capital gain to tax authorities as payments are received, thus spreading tax liabilities.
Institutional lenders are financial intermediaries that provide loans and other financial products, primarily funding these activities through deposits or customer investments and operating under regulatory guidelines to minimize risk.
An Instrument is a written legal document created to establish the rights and liabilities of the parties involved. It is essential in the legal and real estate fields to ensure clarity and enforceability of the terms agreed upon by all parties.
An interest rate is the percentage of a loan amount charged by the lender to the borrower for the use of the borrowed funds. It can also represent the rate of return on an investment. Understanding interest rates is crucial for real estate transactions as they significantly affect mortgage payments and the overall cost of borrowing.
An interest-only loan is a type of financing where the borrower only pays the interest on the principal balance at regular intervals until the loan reaches its maturity date, at which time the full principal amount becomes due. This type of loan does not require amortization during the length of the loan term.
An interest-only loan is a type of mortgage where the borrower is obligated to pay only the interest on the principal balance for a set period, usually between 5 to 10 years.
A kicker is a payment required by a mortgage, in addition to normal principal and interest, often linked to a borrower’s financial performance metrics such as gross sales or profits.
The term 'liable' refers to being responsible or obligated, especially in the context of financial and legal commitments within the realm of real estate. It often indicates a party that is legally bound to uphold agreements or settlements.
A lien is a legal claim or right against a property that is used as security for the payment of a debt, judgment, mortgage, or taxes. It serves as an encumbrance and imposes restrictions on transferring the property until the debt is satisfied.
A lienholder is an individual or entity that holds a lien on a property, thus having a legal right or claim against the property as a security for a debt or obligation.
A loan application is a necessary document required by a lender before issuing a loan commitment. It includes key details such as the borrower's personal information, loan amount and terms, property description, and financial and employment data.
Loan closing, often simply referred to as closing, is the final step in the mortgage process where the borrower and lender finalize various agreements and settle necessary payments to transfer ownership of a property.
A loan contract is a document that acknowledges the debt of the borrower and establishes the terms by which that debt is to be discharged. It outlines the payment schedule, prepayment conditions, and what constitutes a default. In cases of mortgage loans, it also includes pledges of real property as collateral.
A Loan Discount is a type of fee that some lenders charge at the origination of a loan to lower the interest rate charged during subsequent payments. It’s commonly known as discount points.
A loan lock, or locked-in interest rate, is an agreement between a mortgage lender and a borrower that secures a specified interest rate on a mortgage for a predetermined period, usually ranging from 30 to 60 days.
Loan modification refers to changes made to the original terms of an existing loan agreement between the lender and borrower, usually to prevent foreclosure and provide financial relief to the borrower.
Loan proceeds refer to the net amount of money disbursed by a lender to a borrower after all the lender’s fees and other charges have been deducted. It is the actual amount received by the borrower for the intended purpose, such as purchasing real estate.
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. Typically expressed as a percentage, LTV ratios are used to assess the risk involved in a mortgage or loan agreement.
The Loan-to-Value (LTV) ratio is a critical financial metric in real estate and lending that compares the loan amount to the appraised value of the property, influencing mortgage terms, interest rates, and approval processes.
Long-term financing, also known as permanent mortgage, involves a loan with a long repayment period, typically extending over several years or decades. This form of financing is commonly used for purchasing real estate or significant capital investments, and provides borrowers with stability and predictable payment schedules.
A mortgage is a legal agreement in which a lender provides a borrower with funds to purchase real estate. The property serves as collateral for the loan.
A process whereby a specific mortgage lender certifies that a prospective borrower is financially qualified and creditworthy for a specific type of loan with specified terms for an amount up to a specified maximum. Actual advancement of the loan will depend on the suitability and value of the collateral property, which is unspecified at the time of pre-approval. Contrast PREQUALIFY.
Mortgaged Property refers to real or personal property that has been pledged as security for the repayment of a loan. This secured asset is usually real estate property, where the borrower retains ownership while the lender holds a legal claim until the debt is repaid in full.
A mortgagor is the owner of real estate who provides their property as security for a mortgage loan.
A No-Documentation (No-Doc) loan is a mortgage loan wherein the borrower is not required to provide standard forms of documentation, such as proof of income, employment, or assets to secure approval.
A nominee is an individual or entity acting on behalf of another person for specific purposes, generally to hold property rights temporarily.
A Note is a financial instrument that acknowledges a debt and provides a promise to pay. It often accompanies a mortgage, pledging property as security for the debt.
Outstanding balance is the amount currently owed on a debt after accounting for payments already made toward the principal and interest. It is a key figure in managing financing and understanding one’s debt obligations.
Paper credit is a term used in real estate to describe a written obligation given or received instead of cash. It often includes negotiable instruments such as promissory notes or bonds.
A provision in a mortgage that allows some of the property pledged to be freed from serving as collateral.
A partially amortized loan is a type of loan that includes a regular payment schedule over a set period but does not fully pay off the principal within that time, resulting in a balloon payment at the end of the term.
A permanent lender provides long-term financing for real estate projects, typically following the completion of construction. Unlike construction lenders, who offer short-term loans for building and development phases, permanent lenders focus on financing properties for extended periods.
Points are fees paid to lenders to reduce the interest rate or secure a mortgage loan. Each point is 1% of the loan principal, affecting the overall loan cost and effective interest rate.
