Chapter 9 - Finance Loans Vocabulary Flashcards
Chap 9 Vocab (224 cards)
1
Q
Acceleration Clause
A
A contract clause that gives the lender the right to declare all outstanding payments immediately due upon a default by the borrower.
2
Q
Adjustable Rate Mortgage (ARM)
A
A type of loan structure that permits the lender to periodically change or vary the interest rate charged, based on a standard index.
3
Q
agreement of sale
A
(1) A contract for the sale of real property where the seller gives up possession, but retains the title until the purchase price is paid in full. (2) Also called contract for sale or land contract.
4
Q
all-inclusive trust deed
A
A purchase money deed of trust subordinate to but still including the original loan.
5
Q
Amortization
A
Occurs when a loan balance decreases because of periodic installments paid on the principal and interest. The liquidation of a financial obligation on an installment basis.
6
Q
Amortized Loan
A
A financial debt that is paid off over a period of time by a series of periodic payments. A loan can be fully amortized or partially amortized requiring a balloon payment to satisfy the debt at the end of the term.
7
Q
annual (anual/per annum)
A
Once per year.
8
Q
Annual Percentage Rate (APR)
A
Relationship between the total cost of borrowing and the amount financed, represented as a percentage. Also called Effective Rate of Interest. The relationship of the total finance charge to the total amount to be financed as required under the Truth-in- Lending Act.
9
Q
arranger of credit
A
A person who is not party to the real estate transaction, butwill be compensated for arranging the credit, negotiating the credit terms, completing the credit documents, and facilitating the transaction.
10
Q
assumption clause
A
A clause in a document that allows a buyer to take over the existing loan and agree to be liable for the repayment of the loan.
11
Q
assumption fee
A
A lender’s charge for changing over and processing new records for a new owner who is assuming an existing loan.
12
Q
assumption of mortgage
A
The taking of a title to property by a grantee wherein grantee assumes liability for payment of an existing note secured by a mortgage or deed of trust against the property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.
13
Q
Balloon Payment
A
A final lump-sum payment at the end of a loan term to pay off the entire remaining balance of principal and interest not covered by payments during the loan term.
14
Q
Bargain and Sale Deed
A
A type of deed that implies that the grantor owns the property and has the right to convey it, but there are no warranties that go with it.
15
Q
Beneficiary
A
Person designated to receive benefits from a certain act, such as one who benefits from a trust. The lender under a deed of trust.
16
Q
Biweekly Payment
A
Plan A fixed rate mortgage set up like a standard 30-year conventional loan, but payments are made every two weeks instead of every month.
17
Q
blanket loan
A
A loan secured by several properties. The security instrument used can be a blanket deed of trust or a blanket mortgage.
18
Q
Blanket Mortgage
A
A mortgage loan that covers more than one parcel of real estate, usually used to finance entire subdivision developments rather than an individual unit or lot.
19
Q
Bridge Mortgage
A
A mortgage loan that occurs between the termination of one mortgage and the commencement of another. When the next mortgage is taken out, the bridge is repaid. 8i– (1) A loan to bridge the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. (2) Also known as a swing loan.
20
Q
Budget Mortgage
A
A mortgage agreement where payments include principal and interest on the loan, plus 1/12 of the year’s ad valorem property taxes and hazard insurance premiums.
21
Q
CAL-VET Program
A
A program administered by the State Department of Veterans Affairs for the direct financing of farm and home purchases by eligible California veterans of the armed forces.
22
Q
Cap
A
The maximum increase in the interest rate, or the maximum interest rate, that a lender can charge on an adjustable rate mortgage.
23
Q
carryback financing
A
Financing by a seller who takes back a note for part of the purchase price.
24
Q
Cash Flow
A
Measure of cash inflow and outflow from an investment. Positive cash flow means more money is coming into the business than is leaving it. Negative cash flow is the converse. – The net income generated by a property before depreciation and other non cash expenses.
25
Cash-on-Cash Return
The ratio of income generated by the property to the cash investment (down payment and settlement costs) in the property.
26
Ceiling
The maximum increase or decrease in the periodic payment allowable over the life of an adjustable rate mortgage. Also called Lifetime Cap.
27
Certificate of Eligibility (COE)
A certificate issued by the Department of Veteran’s Affairs to establish status and amount of a veteran’s eligibility to qualify for a loan guarantee. -- Issued by Department of Veterans Affairs; evidence of individual’s eligibility to obtain VA loan.
28
Certificate of Reasonable Value (CRV)
A certificate establishing the current market value of a property based on an approved VA appraisal. Issued by the VA, this certificate places a limit on the amount of a VA-guaranteed loan. -- The Federal VA appraisal commitment of property value.
29
Collateral
Something of value given as security for a debt.
30
Combined Loan-to-Value (CLTV)
The relationship between the unpaid principal balances of ALL mortgage loans and the appraised value (or sales price if it is lower) of the property.
31
compound interest
Interest paid on original principal and also on the accrued and unpaid interest which has accumulated as the debt matures.
32
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
A federal law enacted by Congress whose primary emphasis is the cleanup of inactive hazardous waste sites and the liability for cleanup costs on arrangers and transporters of hazardous substances and on current and former owners of facilities where hazardous substances were disposed. Also called Superfund.
33
Conditional Approval
A situation where a lender approves a loan under certain stated conditions.
34
Conforming Loan
A loan that meets the qualifying standards of Fannie Mae or Freddie Mac, and thus can be sold on the secondary market.
35
Consumer Credit Protection Act
A federal law that includes the Truth-in-Lending Law.
36
Consumer Financial Protection Bureau (CFPB)
An agency funded by the Federal Reserve with rulemaking and enforcement authority over many consumer financial laws. Established under provisions of the Dodd-Frank Act.
37
Contingency Clause
A provision in a contract, deed, law, regulation, guideline, etc. that makes the parties’ rights and obligations depend on the occurrence (or nonoccurrence) of a specified event. Also called Condition, Escape Clause, Subject to Clause, or Kick-Out Clause.
38
Contract for Deed
An installment contract in which the seller passes possession but retains title to the property until the total or a substantial portion of the purchase price is paid. The two parties are the vendor (seller) and the vendee (buyer). Also called Land Contract, Agreement for Sale, or Installment Sales Contract.
39
contract of sale
(1) A contract for the sale of real property where the seller gives up possession but retains title until the total of the purchase price is paid off. (2) Also called installment sales contract, a contract of sale, an agreement of sale, a conditional sales contract, or a land sales contract.
40
Conventional Loan
A loan made by an institutional lender or a private party with real estate as security for the loan that the government neither guarantees nor insures. -- Any loan made by lenders without any government guarantees (FHA insured or VA guaranteed).
41
Cost of Money
The interest rate that people or businesses must pay to use another’s money for their own purposes.
42
DD-214
A Certificate of Release or Discharge from Active Duty issued by the Department of Defense. The DD-214 identifies the character of service and reason for discharge (honorable, dishonorable, etc.).
43
Debt
The amount of money owed on a note or other promise to pay.
44
Debt Service
The amount of money paid at regular intervals toward reducing the principal and interest owed on a debt.
45
Debt-to-Income Ratio
The relationship of a borrower's total monthly debt to gross monthly income, expressed as a percentage (Total Debt ÷ Income
46
decimal point
The period that sets apart a whole number from a fractional part of that number.
47
Default
Failure to pay a debt on a contract.
48
Default
Failure to fulfill an obligation, duty, or promise, as when a borrower fails to make payments, a tenant fails to pay rent, or a party fails to perform a contract. A mortgage, note, or other document will define what constitutes default.
49
Deficiency Judgment
A personal judgment against a borrower if the lender/creditor does not receive the amount of the lien plus the costs associated with foreclosure at a foreclosure sale. -- A judgment against a borrower for the balance of a debt owed when the security or the loan is not sufficient enough to pay the debt.
50
Derogatory Credit
Credit history showing previous problems in meeting financial obligations.
51
discount
(1) To sell a promissory note before maturity at a price less than the outstanding principal balance of the note at the time of sale. (2) Also an amount deducted in advance by the lender from the nominal principal of a loan as part of the cost to the borrower of obtaining the loan.
52
Discount Point
A form of pre-paid interest that a lender charges to increase the yield on a lower-than-market interest rate loan. One point equals 1% of the loan amount; one discount point equals approximately 1/8 of a percent. -- The amount of money the borrower or seller must pay the lender to get a mortgage at a stated interest rate. This amount is equal to the difference between the principal balance on the note and the lesser amount which a purchaser of the note would pay the original lender for it under market conditions. A point equals 1% of the loan.
53
Discount Rate
The interest rate charged by Federal Reserve Banks on loans to member commercial banks.
54
discounting a note
Selling a note for less than the face amount or the current balance.
55
Dividend
A number to be divided by another number.
56
Divisor
A number by which another number is divided.
57
Due on Sale Clause
A clause, included in many mortgages, permitting the lender to require the borrower to repay the outstanding balance when the property is sold. Prevents loan assumption.
58
effective interest rate
The percentage of interest that is actually being paid by the borrower for the use of the money, distinct from nominal interest. (APR)
59
Entitlement
The maximum dollar amount of a loan guarantee to which an eligible veteran is entitled. Environmental Impact Statement (EIS) A report required for certain development projects that identifies the positive and negative effects that the proposed action would have on the environment and its inhabitants.
60
Equitable Title
Any present right to acquire legal title to property. -- (1) The interest held by the trustor under a trust deed. (2) Selling a note for less than the face amount or the current balance.
61
Equity
An owner’s unencumbered interest in property; the difference between the value of the property and the liens, such as a mortgage, against it.
62
Escalation Clause
A lease clause that provides for an increase in rent to reflect increases in expenses paid by the landlord, such as real estate taxes, operating costs, and cost of living expenses. Also called Escalator.
63
Escape Clause
A clause, term, or condition in a contract that allows a party to that contract to avoid having to perform the contract.
64
Execute
(1) To perform or complete. (2) To sign.
65
Fannie Mae
Fannie Mae buys loans that conform to Fannie Mae guidelines from lenders, and, by doing so, puts mortgage money back into the system so lenders can make more loans.
66
Federal Housing Administration (FHA)
A federal agency established in 1943 to increase home ownership by providing an insurance program to safeguard the lender against the risk of non-payment. Currently part of HUD.
67
FHA-Insured Loan
A mortgage loan insured by the Federal Housing Administration that protects the lender against losses from default.
68
fictitious trust deed
Recorded trust deed containing details which apply to later loan documents.
69
finance charge
The dollar amount the credit will cost and is composed of any direct or indirect charge as a condition of obtaining credit.
70
First Mortgage
A mortgage on real estate in which the lender's rights are superior to the rights of subsequent lenders. (Recorded first)
71
first trust deed
A legal document pledging collateral for a loan (see trust deed) that has first priority over all other claims against the property except taxes and bonded indebtedness. This trust deed is superior to any other.
72
Fixed Expenses
Ongoing operating expenses that do not vary based on occupancy levels of the property (e.g., taxes, insurance).
73
Fixed Fee
Commission agreement by which a fixed dollar amount is paid for the performance of specific real estate services; payment usually requires the successful completion of the transaction.
74
fixed rate full amortized loan
A loan with two distinct features. First, the interest rate remains fixed for the life of the loan. Second, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term.
75
fixed rate loan
The most common type of loan. The principal and interest are calculated for the term of the loan. Payments are determined by dividing the total by the number of payments in the term of the loan. Regular payments of fixed amounts, to include both interest and principal are made. This payment pays off the debt completely by the end of the term. -- A loan for which the interest rate remains constant.
76
Flipping
Purchasing a property and quickly reselling it for a profit.
77
Freddie Mac
A shareholder-owned corporation that purchases, secures, and invests in home mortgages.
78
Fully Amortized Mortgage
A method of loan repayment in which the dollar amount of each payment is the same. A portion of each payment is applied to interest, and the remainder reduces the principal. Over the life of the mortgage, the outstanding balance is reduced to zero. -- A note that is fully repaid at maturity by periodic reduction of the principa
79
Ginnie Mae
An agency of HUD, which functions in the secondary mortgage market, primarily in social housing programs.
80
Government National Mortgage Association (GNMA)
Commonly known as “Ginnie Mae,” this agency of the Department of Housing and Urban Development (HUD) operates in the secondary mortgage market. It is involved with special government financing programs, e.g., FHA-insured and VA-guaranteed loans.
81
grace period
An agreed-upon time after the payment of a debt is past due, during which a party can perform without being considered in default.
82
Graduated Payment Mortgage (GPM)
A financing technique for residential real estate in which monthly payments start at a lower rate and increase periodically over the life of the mortgage; an example is the FHA 245 loan. -- (1) A loan with partially deferred payments of principal at the start of the term, increasing as the loan matures. (2) Also known as the flexible rate mortgage.
83
Growth Equity Mortgage
A fixed rate mortgage set up like a conventional loan, but payments increase regularly. -- fixed interest rate of increasing monthly payments.
84
Habendum Clause
A clause in a deed, usually beginning with “to have and to hold,” that describes the type of estate granted.
85
hard money loan
Any loan made on real property in exchange for cash.
86
Holder
The party to whom a promissory note is made payable.
87
Holder in Due Course
One who acquires a negotiable instrument in good faith and for consideration, and thus has certain rights above the original payee.
88
Home Acquisition Debt
A loan that a taxpayer takes out to buy, build, or substantially improve a qualified home.
89
Home Equity Debt
A loan that does not qualify as home acquisition debt but is secured by a qualified home.
90
Home Equity Line of Credit (HELOC)
Available money that a homeowner can borrow, secured by a second mortgage on the principal residence. The homeowner can access HELOC funds at any time up to a predetermined borrowing limit and use them for non-housing expenditures.
91
Home Equity Loan
A loan taken by a homeowner that is secured by a mortgage on her principal residence; not for the purchase of the property. -- A cash loan made against the equity in the borrower’s home.
92
Horizontal Property Acts
A generic name given to state laws that create the legal framework that allows a condominium form of ownership. These acts make it possible for lenders to provide mortgages on condominiums, for tax authorities to assess property taxes, etc.
93
Housing Expense Ratio
The relationship of a borrower's total monthly housing expense to gross monthly income, expressed as a percentage (Total Housing Expense ÷ Income
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Hypothecation
The act of pledging property to be the security for a loan without giving up possession of it (as with a mortgage).
95
Increasing and Decreasing Returns
Economic principle stating the addition of more factors of production will add higher amounts to new income up to a certain point, which is the point where the maximum value of the asset has been reached; any further addition of factors of production will do nothing to increase the value.
96
Index
A statistical report that is generally a reliable indicator of the approximate change in the cost of money; often used to adjust the interest rate of adjustable rate mortgages.
97
Index Lease
A lease in which the amount of the rent is tied to some common index indicator such as the Consumer Price Index or the Wholesale Price Index. As the agreed-upon index increases, the rent goes up by the same percentage of change.
98
Interest
1. A right or share in something, such as a parcel of real estate. 2. A charge a borrower pays to a lender for the use of the lender’s money.
99
interest only loan
A straight, non-amortizing loan in which the lender receives only interest during the term of the loan and principal is repaid in a lump sum at maturity.
100
Interest Rate
The cost of using money expressed as a percent per period.
101
interim loan
A short-term, temporary loan used until permanent financing is available, e.g., a construction loan.
102
Jumbo Loan
A loan that exceeds the maximum loan amount that Fannie Mae and Freddie Mac will buy, making it nonconforming.
103
Junior Lien
An encumbrance that is second in priority to a previously recorded lien or to a lien to which the encumbrance has been subordinated.
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junior mortgage
A second mortgage; one that is subordinate or has an inferior priority to the first mortgage.
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junior trust deed
Any trust deed that is recorded after a first trust deed, whose priority is less than that first trust deed.
106
Junk Fees
Charges assessed to a borrower by the loan originator that serve little if any function and are often hidden in the mortgage documents. Junk fees may or may not pay for an actual service to the borrower, but they typically are not known to the borrower prior to signing.
107
Kickback
Fee or other compensation given as undisclosed commission for business referrals. Kickbacks are prohibited by RESPA.
108
Land Trust
A trust in which real estate is the only asset. The beneficiary has the right to possess the property as well as receive income or proceeds from its sale. The trustee manages the real estate as directed by the beneficiary.
109
Legal Title
1. The interest in property held by the rightful owner. 2. The seller's interest in property under a land contract. Also called Actual Title. -- Title that is complete and perfect regarding right of ownership.
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Lien Theory State
A state in which real estate mortgages are regarded as liens; title remains with the mortgagor as long as no default occurs.
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Liquidity
The ability to convert an asset into cash quickly without the loss of principal.
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loan assumption
A buyer assumes the existing loan when a property is sold. The buyer takes over primary liability for the loan, with the original borrower secondarily liable if there is a default.
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Loan Estimate
The disclosure of loan terms, annual percentage rate and other credit costs, and estimated settlement costs that lenders must present to borrowers within three business days of a completed loan application in order to satisfy provisions of the Truth in Lending Act and the Real Estate Settlement Procedures Act.
114
Lock-In Agreement
A written or electronically transmitted agreement between a lender and an applicant for a mortgage loan which, subject to the terms set forth in the agreement, obligates the lender to make a mortgage loan at a specified rate and a specific time period.
115
Maker
The borrower who executes a promissory note and becomes primarily liable for payment to the lender.
116
Margin
The difference between the index value and the interest rate charged to the borrower with an adjustable rate mortgage; the lender’s profit.
117
Mortgage
A security instrument that creates a voluntary lien on real property to secure repayment of a debt. -- A legal document used as security for a debt.
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Mortgage Broker
A person who, for compensation, makes, negotiates, acquires, sells, or arranges for a mortgage loan.
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Mortgage Contingency
A clause in a contract that states the agreement is contingent on the buyer obtaining approval for a mortgage loan.
120
Mortgage Insurance Premium (MIP)
The fee charged for FHA mortgage insurance coverage. The initial premium can be financed, and there is a monthly premium. Also called Upfront Mortgage Insurance Premium (UFMIP).
121
Mortgage Loan Originator (MLO)
A person who solicits, negotiates, explains, or finalizes the terms of a mortgage loan for residential real estate.
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Mortgagee
A lender who accepts a mortgage as security for the repayment of a loan. -- The lender under a mortgage.
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Mortgagee’s Policy
A type of title insurance that the lender may have drawn in its own name to protect its interests in the property. This policy is for the loan amount that’s outstanding at the time a claim would be paid.
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Mortgagor
A person who borrows money and gives a mortgage to the lender as security for repayment. -- The borrower under a mortgage.
125
mutual mortgage insurance
A fee for an insurance policy charged to the borrower to protect lender under an FHA loan, in the event of foreclosure on the property.
126
naked legal title
Title lacking the rights and privileges commonly associated with ownership may be held by trustee under a trust deed.
127
Negative Amortization
The effect when a loan balance grows because of deferred interest when payments are not covering the interest portion of the loan. -- Occurs when monthly installment payments are insufficient to pay the interest, so any unpaid interest is added to the principal due.
128
Negotiable
Capable of being negotiated, assignable or transferable in theordinary course of business.
129
Negotiable Instrument
A promissory note or other finance instrument that is freely transferrable. Any written instrument that may be transferred by endorsement or delivery.
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nominal interest rates
The interest rate that is named or stated in loan documents.
131
Nonconforming Loan
Loan that does not meet Fannie Mae/Freddie Mac standards and, thus, cannot be sold on the secondary market.
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Nonrecourse Loan
A loan in which the lender cannot collect the personal assets of the borrower or the borrower's heirs when the collateral for the loan is sold for less than the amount owed on the loan.
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notice of default
A notice to a defaulting party that there has been a nonpayment of a debt.
134
notice of trustee’s sale
Notice given, and published, that a trustee’s sale will be held to sell a property to satisfy a debt.
135
open end loan
A loan where the borrower is given a limit up to which may be borrowed, with each advance secured by the same trust deed.
136
Open–End Mortgage
A loan containing a clause that allows the mortgagor to borrow additional money without rewriting the mortgage.
137
Operating Budget
A budget created to project the income and expenses for a property over a one-year period.
138
or more clause
A clause in a mortgage or trust deed that allows a borrower to pay it off early with no penalty.
139
Origination Fee
A fee charged by a lender to cover the administrative costs of making a loan, usually based on a percentage of the loan amount. See Point.
140
package loan
A type of loan on real property used in home financing covering land, structures, fixtures, and other personal property. -- personal property (e.g., appliances) is included in a real estate sale and financed with one contract.
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partial reconveyance
A clause in a trust deed or mortgage permitting the release of a parcel or part of a parcel from the lien of that security instrument. The release usually occurs upon the payment of a specified sum of money.
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Partially Amortized Mortgage
A method of loan repayment in which the balance of the outstanding loan is not zero at maturity, and thus a balloon payment is due at that time.
143
Payment Cap
A limit on the amount of mortgage payment increases that can occur with an adjustable rate mortgage.
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Pecuniary Loss
Monetary loss.
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Pledge
The transfer of property to a lender to be held as security for repayment of a debt. The lender takes possession of property.
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pledged savings account mortgage
A borrower has a large amount of money in a savings or thrift account, and uses this money to maintain the account as security for a lender. The lender requires a certain ratio of the new loan amount to the balance in the account. The borrower must keep that amount in the account for a specified length of time. The lender can release the pledge account when the property has acquired enough equity to qualify under normal loan-to-value ratios.
147
Point
One percent of the loan amount. A fee charged by a lender for making a loan, calculated based on the loan amount. -- Charges levied by the lender based on the loan amount. Each point equals 1% of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point. (See Discount Points)
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Power of Sale Clause
A clause that allows the trustee to sell trust deed property, without court supervision, when terms of the trust deed are not kept. A clause in a trust deed or mortgage that gives the holder the right to sell the property in the event of default by the borrower.
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Prepayment Clause
A contract clause that gives a lender the right to charge the borrower a penalty for paying off a loan early. A clause in a trust deed that allows a lender to collect a certain percentage of a loan as a penalty for an early payoff.
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prepayment penalty
(1) Penalty for the payment of a note before it actually becomes due. (2) A fee or charge imposed upon a debtor who desires to pay off their loan before its maturity.
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Prime Rate
The short-term interest rate a bank charges its most creditworthy customers.
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Priority
The order in which deeds are recorded.
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Private Mortgage Insurance (PMI)
Insurance offered by private companies to insure a lender against a borrower's default on a loan. available to conventional lenders on the first part of a high risk loan.
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Promissory Note
A financing instrument that evidences a promise to pay a specific amount of money to a specific person within a specific time frame. A written, legally binding promise to repay a debt. The evidence of the debt.
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Purchase Money Mortgage/Trust Deed
Generally describes a mortgage used to finance the purchase of real property; may specifically refer to a situation where the seller finances all or part of the sale price of real property for the buyer. -- A trust deed or mortgage given as part or all of the purchase consideration for real property. In some states the purchase money mortgage or trust deed loan can be made by a seller who extends credit to the buyer of property or by a third party lender (typically a financial institution) that makes a loan to the buyer of real property for a portion of the purchase price to be paid for the property. In many states there are legal limitations upon mortgages and trust deed beneficiaries collecting deficiency judgments against the purchase money borrower after the collateral hypothecated under such security instruments has been sold through the foreclosure process. Generally no deficiency judgment is allowed if the collateral property under the mortgage or trust deed is residential property of four units or less with the debtor occupying the property as a place of residence.
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Rate
The percentage of interest charged on the principal.
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Rate of Return
A percentage relationship between the investment price or equity invested and the composite returns.
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reconveyance deed
Conveys title to property from a trustee back to the borrower (trustor) upon payment in full of the debt secured by the trust deed.
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Recourse Loan
A loan in which, in the event of default, the lender can take action against the borrower personally in addition to foreclosing on the property.
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Refinancing
A description of an extension of the existing financing either through the same lender or through a new financial arrangement. Paying off an existing obligation and assuming a new obligation in its place. To finance anew, or extend or renew existing financing.
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Reinstate
To bring current and restore.
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release clause
A provision found in many blanket mortgage or trust deeds enabling the borrower to obtain partial release from the loan of specific parcels.
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renegotiable rate mortgage
A type of loan in which the interest rate is renegotiated periodically.
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request for notice
A notice that is sent, upon request, to any parties interested in a trust deed, informing them of a default.
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Reserve Requirement
The percentage of customers' deposits that commercial banks are required to keep on deposit, either on hand at the bank or in the bank's own accounts; in other words, money the bank cannot lend to other people.
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Reserves
Cash on deposit or other highly liquid assets a borrower must have to cover two months of PITI mortgage payments after they make the cash down payment and pay all closing costs.
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Reserves for Replacement
An amount of money, considered as an operating expense, set aside for future replacement of major items, such as the roof or heating system.
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Residual Income
The amount of a borrower’s income remaining after subtracting taxes, housing expenses, and all recurring debts and obligations; a factor when qualifying prospective borrowers for VA-guaranteed loans.
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Reverse Mortgage
Allows qualified homeowners age 62 or older to convert equity in the home into a lump sum, a monthly cash stream, or a line of credit; becomes due when the last surviving borrower dies, sells the home, or ceases to live in the home for 12 consecutive months.
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Right of Preemption
An option to be given the first chance to buy or lease property if the owner decides to sell or lease it after receiving a bona fide offer from a third party. Also called Right of First Refusal.
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Right of Rescission
The right of a consumer to rescind any credit transaction involving his or her principal residence as collateral (except first mortgages), lasting up to midnight of the third business day after the transaction.
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rollover mortgage
A loan that allows the rewriting of a new loan at the termination of a prior loan.
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Satisfaction
Discharge of a mortgage or trust deed from the records upon payment of the debt.
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Second Mortgage
A mortgage subordinate to a first mortgage. Also called Junior Mortgage.
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second trust deed
The evidence of a debt that is recorded after a first trust deed; a junior trust deed.
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security
Evidence of obligations to pay money.
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security agreement
A document commonly used to secure a loan on personal property.
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security interest
The interest of a creditor (lender) in the property of a debtor (borrower).
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Semiannual
Twice per year at six month intervals.
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Semimonthly
Twice a month.
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Share Loan
A co-op loan signifying a buyer is purchasing shares in a corporation rather than a mortgage for ownership of property.
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shared appreciation mortgage
Lender and borrower agree to share a certain percentage of the appreciation in market value of the property.
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sheriff’s deed
A deed given to a buyer when property is sold through courtaction in order to satisfy a judgment for money or foreclosure of a mortgage.
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Sheriff’s Deed
A deed issued by the court to a property buyer from a foreclosure sale. Also called Master Commissioner’s Deed.
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Sheriff’s Sale
A foreclosure sale held after a judicial foreclosure. Also called Execution Sale.
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Short Sale
A lender-approved sale from which the proceeds are not sufficient to cover the mortgage amount(s).
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simple interest
Interest computed on the principal amount of a loan only as distinguished from compound interest.
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standby commitment
A letter that promises to deliver a takeout loan in the future.
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Straight Loan
A non-amortized loan in which the regular payments cover only the interest over the term of the loan. Also called Bullet Loan. (1) A promissory note in which payments of interest only are made periodically during the term of the note, with the principal payment due in one lump sum upon maturity. (2) This may also be a note with no payments on either principal or interest until the entire sum is due.
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Straw Buyer
A person who receives payment from a conspirator for the use of that person's name and credit history to apply for a loan, generally as part of a mortgage fraud scheme. Also called Straw Owner or Straw Purchaser.
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subject to clause
A buyer takes over the existing loan payments, without notifying the lender. The buyer assumes no personal liability for the loan.
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Subordination Agreement/Clause
A written agreement between lienholders on a property that changes the priority of mortgages, judgments, and other liens.
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Subprime Loan
Loan that has more risks than allowed in the conforming market. Also called B-C Loans or B-C Credit.
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subrogation
Replacing one person with another in regard to a legal right or obligation. The substitution of another person in place of the creditor, to whose rights he or she succeeds in relation to the debt. The doctrine is used very often where one person agrees to stand surety for the performance of a contract by another person.
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Superfund
Amendments and Reauthorization Act (SARA) An act that amended CERCLA, designated more money to the Superfund trust, and established new environmental laws and regulations.
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swing loan
(1) A short-term loan used to enable the purchaser of a new property to buy that property on the strength of the equity from the property the purchaser is now selling. (2) Also known as a bridge loan.
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Syndicate
An association of people or entities formed to operate an investment business. A syndicate is not a recognized legal entity; it can be organized as a corporation, partnership, or trust. Also called Syndication. (1) Two or more individuals who come together for the business purpose of managing an investment. (2) Also known as a real estate syndicate.
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Takeout Loan
A loan that provides permanent financing after construction is complete. The permanent loan that pays off a construction loan.
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Term Mortgage
A method of financing in which only interest is paid during the term of the loan. At maturity, generally five years or less, the entire principal is due. Also called Straight Loan.
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Time
The duration of a loan.
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Title Theory State
State in which a mortgagee holds actual title to property until the loan is repaid.
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Trigger Term
A word or phrase that describes a loan, including the down payment, terms, and monthly payment. If an ad uses a trigger phrase, disclosures are needed to tell everything about the loan. Also called Trigger Phrase.
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Trust
A legal arrangement in which title to property (or funds) is vested in one or more trustees who manage the property (or invest the funds) on behalf of the trust’s beneficiaries, in accordance with instructions set forth in the document establishing the trust.
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trust deed
A security instrument that conveys naked legal title of real property.
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Trustee
A person appointed to manage a trust on behalf of the beneficiaries; in a trust deed, an independent third party that holds the trust instrument. Holds naked legal title to property as a neutral third party where there is a deed of trust.
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trustee’s deed
A deed given to a buyer of real property at a trustee’s sale.
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trustee’s sale
The forced sale of real property, by a lender, to satisfy a debt.
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Trustor
The property owner who grants a trust to a third party for the benefit of someone else. The borrower on a loan under a deed of trust.. Signs the promissory note and the trust deed and gives them to the beneficiary (lender).
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Truth in Lending Act (TILA)
Federal law that requires disclosure of the terms of credit by a creditor to a prospective borrower. Implemented by Regulation Z, which is under the oversight of the Consumer Financial Protection Bureau. (1) A federal law that requires borrowers to be informed about the cost of borrowing money. (2) Also known as Regulation Z.
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Uniform Residential Appraisal Report (URAR)
A standard appraisal report form used by lenders and appraisers because it has been developed and approved by secondary mortgage market players Fannie Mae and Freddie Mac.
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Uniform Residential Loan Application (URLA)
A standardized form from Fannie Mae or Freddie Mac that lenders require potential borrowers to complete with pertinent information about the borrower and the property.
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Uniform Standards of Professional Appraisal
Practice (USPAP) Professional appraisal standards developed by The Appraisal Foundation, and now recognized throughout the United States as accepted standards of appraisal practice.
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Unsecured Loan
A loan made on the signature and credit of the borrower, not secured by collateral.
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USDA Rural Development Loan programs from the U.S. Department of Agriculture
guarantees loans or makes direct loans for the purchase of an existing home, construction or a new home, renovations or repairs, relocation of a home, or the purchase a site for the loan.
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Usury
Charging a higher interest rate than the law allows.
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VA loan
A loan made to qualified veterans for the purchase of real property wherein the Department of Veterans Affairs guarantees the lender payment of the mortgage.
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VA-Guaranteed Loan
A mortgage loan made by lenders to eligible veterans that is guaranteed by the U.S. Department of Veterans Affairs, protecting the lender up to specified dollar amounts.
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Variable Interest Rate Mortgage (VRM)
A type of loan in which the interest rate charged by the lender varies according to some index not controlled by the lender.
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Vendee
The buyer in a land contract.
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Vendor
The seller in a land contract.
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Verification of Deposit (VOD)
A form sent by a bank directly to a lender verifying the borrower's accounts.
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Wraparound Mortgage
(1) A method of financing where a new loan is placed in a secondary position; the new loan includes both the unpaid principal balance of the first loan and whatever sums are loaned by the lender. (2) Sometimes called an All-Inclusive Trust Deed (AITD).
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Yield
The interest earned by an investor on the investment. (1) The yield expressed as a percentage of the total investment. (2) Also called rate of return.
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Yield Spread Premium (YSP)
A tool that mortgage brokers can use to lower the upfront closing costs for a borrower.
