Acceleration Clause
A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Accrued Depreciation
The difference between the cost of replacement of a building new, as of the date of the appraisal, and the present appraised value.  Depreciation that has accumulated over a period of time.

Adjustable Rate Mortgage (ARM)
A mortgage with and interest rate that fluctuates according to the movements of a predetermined index. There are several types of ARM's, some change quicker than others, but all have a ceiling cap.

Adjusted Cost Basis
The income tax cost basis of property with certain additions, such as the cost of improvements, and cost certain subtractions, such as depreciation in value.

Affiliate
A group that is closely connected with a larger group, or a person who joins with others to form a group.  To associate as a member.

Alternative Financing
Mortgage options available below market rate including ARM's, buy down's and graduated payment mortgages (GPM's).

Amortization
The gradual repayment of a mortgage by installments.

Amortization Schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance of the loan.

Annual Percentage Rate (APR)
The total cost of your mortgage loan expressed as an annual interest rate. This includes the base interest rate, mortgage insurance, origination fees, and some other related fees.

Annuity
A series of equal or nearly equal payments to be made over a period of time.  The installment payments due to a landlord under a lease or installment payments due to lender are examples of an annuity.

Appraisal
An opinion by a licensed real estate appraiser regarding the fair market value of a property.

Appreciation
Difference between the increased value of a property and the original cost of the property.

Assumable Loan
Usually for a small assumption fee, a new buyer can take over or assume the loan of the previous homeowner, saving closing cost and loan origination fees. Some are non-qualifying most are through qualification.


 

Capitalization Rate
The cap rate is the rate of return on net operating income considered acceptable for an investor and used to determine the capitalized value.  This rate should provide a return on, as well as a return of, capital; also know as "Cap Rate."  

Cash Reserve
A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.

Central Business District (CBD)
Property characterized by its location in a Central Business District; the downtown section of a city, generally consisting of retail, office, hotel, entertainment, and government land uses with some high-density housing.

Class A
A property classification for properties that are above average in terms of design, construction and finish; command the highest rental rates; have a superior location, in terms of desirability and/or accessibility; generally are professionally managed by national or large regional management companies.

Class B
A property classification for properties that frequently do not possess design and finish reflective of current standards and preferences; construction is adequate; command average rental rates; generally are well maintained by national or regional management companies; generally are professionally managed by national or large regional management companies.

Class C
A property classification for properties that provide adequate functionality, exhibit some level of deferred maintenance; command below average rental rates; usually located in less desirable areas; generally managed by smaller, local property management companies; tenants provide a less stable income stream to property owners than Class A and Class B tenants.

Clear Marketable Title
A title that is free of liens or legal questions as to ownership of property.

Closing
The meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing cost. Also known as "settlement."

Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."

Community Home Buyer's Program
An alternative financing option that allows households of modest means to qualify for mortgages using nontraditional credit histories, 33 percent housing-to-income and 38 percent debt-to-income ratios, and the waiver of the usual two payments cash reserves at closing.

Condominium - A form of property ownership in which the homeowner holds title to an individual dwelling unity plus an interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas.

Conduit
The financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor.  The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the CMBS market.

Contingency
A condition that must be met before a contract is legally binding.

Conventional Mortgage
Any mortgage that is not insured or guaranteed by the federal government.

Convertible ARM
An adjustable-rate-mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Cooperative
A type of multiple ownership in which the residents of a multi-unit
housing complex own shares in the corporation that owns the property, giving each
resident the right to occupy a specific apartment or unit.

Covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's credit worthiness.


 

FICO
The most common credit scoring model used by lenders.  FICO scores can range from 350 to 900.  According to this model, the higher the score, the less likely the borrower is to default on a loan.  Also known as a Fair Isaac score.

First Mortgage
A mortgage that has first claim in the event of default.

Fixed Rate Mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.

Flood Insurance
Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas.

Forbearance
The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

Foreclosure
The legal process by which a mortgaged property may be sold when a mortgage is in default.

 

Grantee
The person to whom an interest in real property is conveyed.

Grantor
The person conveying an interest in real property.

 

Late Charge
The penalty a borrower must pay when a payment is made after the due date.

Lien
A legal claim against a property that must be paid off when the property is sold.

Lifetime Cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Listing Contract
A contract with a broker or firm the sellers hire to represent them in the sale of their home, according to the terms of sale that they specify. In exchange for producing a ready-willing-and-able buyer, the agent is paid a commission.

Loan Application Fee
A lender's fee, usually ranging from $75 to $300, which the buyer must pay when applying for a mortgage.

Loan Commitment
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

Loan Origination Fee
A fee charged by the lender for processing a mortgage.

Loan Servicing
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan-to-Value Ratio (LTV)
The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.

Lock-In
A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.


 

Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary market.

Mortgage Broker
An individual or company that for a fee acts as an intermediary between borrowers and lenders.

Mortgage Insurance
(Also known as Private Mortgage Insurance (PMI)) Insurance provided by nongovernmental insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) ratios greater than 80 percent.

Mortgage Insurance Premium (MIP)
The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

Mortgage Note
A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the mortgage note is secured by a mortgage.

Mortgagee
The lender in a mortgage agreement.

Mortgagor
The borrower in a mortgage agreement.

Multiple Listing Service (MLS)
A networking system, frequently on computer, in which a number of real estate firms share information about their client's homes that are for sale.


 

Net Operating Income
Gross annual income less vacancies, uncollectible rents, and other operating expenses.

Net Spendable Income
Net Operating Income less loan payments and income taxes on the property's taxable income.

Nominal Interest Rate
The interest rate that appears on the real estate promissory note.  Note the "effective rate."  Also called the "Note Rate."

Non-institutional  Lender
Lender on real estate loans other than banks, insurance companies and saving and loan associations.

Non-recurring Closing Costs
Costs that are one-time charges paid at the close of escrow.

Note
A signed instrument acknowledging a debt and a promise to repay per the item outlined.

Notice of Default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

 

Portfolio Lender
A company that underwrites mortgage loans and keeps them on the books instead of selling them on the secondary market.

Pre-approval
The process of determining that a borrower is credit approved up to a predetermined amount. The borrower is credit approved pending the locating of a home that meets the predetermined loan criteria.

Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

Prequalification
The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for.

Principal
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Private Mortgage Insurance (PMI)
Insurance provided by nongovernmental insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent.

Purchase and Sale Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.


 

Recourse
The right of the holder of a note secured by a real estate loan to look personally to the borrower or endorser for payment, not just to the property.  In the secondary mortgage market, the forced repurchase of a defaulted loan or note by the seller.

Recurring Closing Costs
Prepaid repeating expenses paid by the borrower at close of escrow, such as tax reserves, hazard insurance, and prepaid interest.

Refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.

Reverse Mortgage
Also called HECM (Home Equity Conversion Mortgage), these loans permit senior citizens age 62 and above to convert the equity in their homes to income. The lender makes monthly cash payments to the homeowner, and repayment is deferred for a set period or until the homeowner dies and the house is sold.


 

Subprime Borrower
A borrower with a less-than-perfect credit report due to late payments or a default on debt payments. Lenders often grade them based on the severity of past credit problems, with categories ranging from "A-" on down to "D" or lower.

Subprime Mortgage
A mortgage granted to a borrower considered subprime, that is, a person with a less-than-perfect credit report. Subprime borrowers have either missed payments on a debt or have been late with payments. Lenders charge a higher interest rate to compensate for potential losses from customers who may run into trouble or default.

Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

 

Trustee
A fiduciary who holds or controls property for the benefits of another.

Truth-in-Lending (TIL)
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage including the "annual percentage rate (APR)" and other charges.

 

Vendee
Receiver of a thing being vended (sold), or buyer.

Vendor
Owner of thing being sold; seller.

Vested
One has a right to use a portion of a fund, such as an individual's retirement fund.
 
 

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