Glossary - Mortgage Terms               
                                                                                            

      1040 Federal Tax Return
        The Federal tax form used by U.S. citizens and residents to report their annual
        income to the Federal government. The 1040 tax return must be accompanied
        by any applicable schedules, which provide line-item detail of various sources
        of income. Schedule A details itemized deductions. Schedule B details investment
        income. Schedule C details business income. Schedule D details capital gains/losses.
        Schedule E details supplemental income, rental income. Schedule F details farming
        profit/loss.
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      3/1, 5/1, 7/1 and 10/1 Hybrid ARMs
        Adjustable-rate mortgages in which rate is fixed for three-year, five-year, 
        seven-year and 10-year periods, respectively, but may adjust annually after that.
        These popular ARMS can offer the best of both worlds.  A lower interest rate
        (like ARMS) and a fixed monthly payment for a longer period of time than most
        adjustable rate arms.
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      30 Year Fixed Rate Mortgage
        The traditional 30 year fixed rate mortgage has a constant interest rate and monthly
        payments that never change.  They may be a good choice if you plan to stay in
        your home for seven years or longer.  If you plan to move within 7 years, adjustable
        rate loans are usually cheaper.  As a rule of thumb, fixed rate loans may also be
        harder to qualify for the adjustable rate loans.  When interest rates are low, fixed
        rate loans are generally not that much more expensive than adjustable rate
        loans and may be a better deal in the long run, because you can lock in the rate for
        the life o f the loan.
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      15 Year Fixed Rate Mortgage
        This loan is fully amortized over a 15- year period and features constant monthly
        payments.  It offers all the advantages of the 30-year loan, plus a lower
        interest rate and you'll own your home twice as fast.
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      Abstract of judgment
        A summary of the essential provisions of a court judgment which, when recorded in
        the county recorder's office, creates a lien upon the property of the debtor in that
        county, both presently owned or after acquired.
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      Adjustable rate mortgage (ARM)
        Is a mortgage in which the interest rate is adjusted periodically based on a
        pre-selected index. Also sometimes known as the renegotiable rate mortgage,
        the variable rate mortgage or the Canadian rollover mortgage.
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      Alimony
        Periodic payments made under a divorce decree or a written separation agreement
        toward the support of a former spouse.  Alimony may be taken as a deduction from
        adjusted gross income by the person who pays it, while the person who receives it
        must claim it as taxable income.
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      Appraisal
        Opinion as to the monetary value of the property.  For example, an appraisal of
        property provides an idea of how much money the property is worth in the housing
        market at a given time.
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      Appreciation
        An increase in value.  Example: An increased value of the property due to either
        a positive improvement of the area or the elimination of negative factors.
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      Balloon Mortgage
        A loan which is amortized for a longer period than the term of the loan. Usually
        this refers to a thirty-year amortization and a five year term. At the end of the
        term of the loan, the remaining outstanding principal on the loan is due. This final
        payment, or the large payment due at the end of the loan contract is known as a
        balloon payment.
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      Borrower (Mortgagor)
        One who applies for and receives a loan in the form of a mortgage with the
        intention of repaying the loan in full. If the loan is secured by a mortgage, the
        borrower is known as a mortgagor.
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      Cash Flow
        The amount of cash derived over a certain period of time from income-producing
        property, or investments after all operating expenses and loan payments have
        been made.
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      Cash-Out
        A refinance transaction in which the borrower receives cash that may be used for any
        purpose.
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      Chapter 13 Bankruptcy
        Chapter 13 is a debt reorganization plan where debts are repaid under a
        court-supervised repayment plan. Debtors submit part of their income for
        distribution among creditors. Also known as the wage-earner plan.
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      CHAPTER 7 Bankruptcy
        A Chapter 7 Bankruptcy is a straight liquidation bankruptcy where the debtor
        submits all of their non-exempt assets to the trustee for liquidation; proceeds
        are disbursed to creditors.
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      Closing
        The meeting between the lender and borrower, or a buyer, seller and lender, or
        their agents when the loan documents are signed and the funds legally change hands.
        Also known as settlement.. 
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      Deed of trust
        In many states, this document is used in place of a mortgage to secure the payment 
        of a note. (same as trust deed)
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      Default
        Failure to meet legal obligations in a contract, specifically, failure to make the monthly
        payments on a mortgage.
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      Deferred interest
        When a mortgage is written with a monthly payment that is less than required to
        satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.
        (See negative amortization).
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      Delinquency
        Failure to make payments on time. This can lead to foreclosure.
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      Equal Credit Opportunity Act (ECOA)
        Is a federal law that requires lenders and other creditors to make credit equally
        available without discrimination based on race, color, religion, national origin, age,
        sex, marital status or receipt of income from public assistance programs.
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      Equity
        The difference between the fair market value and current indebtedness, also referred
        to as the owner's interest. The value an owner has in real estate over and above the
        obligation against the property.
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      Equity line of credit
        A combination of a line of credit and equity loan secured by real property. A maximum
        loan amount is established based on credit and equity. A mortgage is recorded against
        the potential borrower’s property for said maximum loan amount. The potential
        borrower has the right to borrow, as needed, up to the amount of the credit line.
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      Escrow
        Delivery of something of value by a grantor to a 3rd party for delivery to the grantee
        upon the happening of a contingent event. In some states, all instruments necessary
        to the sale are delivered to a 3rd party, with instructions as to their use.
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      Federal Tax Lien
        A lien attaching to a property for nonpayment of a Federal tax. A Federal tax
        lien differs from other liens in that it’s not automatically eliminated by a senior
        lien holder foreclosing on a mortgage or trust deed recorded before the tax lien.
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      First Lien Position (First Mortgage)
        A secured claim against a property that will be the first claim to be repaid
        should the property owner someday declare bankruptcy or default on the
        secured loan.  The primary lien against a property.
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      Fixed Income
        Income of a specified and consistent value that is received at specified and consistent
        intervals. Types of fixed income include social security benefits, VA benefits,
        pension income, permanent disability benefits, welfare/aid income and child
        support/alimony.
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      Fixed Rate Mortgage
        The mortgage interest rate will remain the same on these mortgages throughout
        the term of the mortgage for the original borrower.
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      Forbearance
        A lender's act of refraining from taking legal action despite the fact a mortgage
        is in arrears. It’s usually granted when a mortgagor makes a satisfactory
        arrangement by which the arrears will be paid at a future date.
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      Foreclosure
        A legal process by which the lender or the seller forces a sale of a mortgaged
        property because the borrower has not met the terms of the mortgage. Also
        known as a repossession of property.
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      Free and clear
        Real property against which there are no liens, especially voluntary liens..
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      Hazard Insurance
        A form of insurance in which the insurance company protects the insured from
        specified losses, such as fire, windstorm and the like.
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      Impound Account
        That portion of a borrower's monthly payments held by the lender or servicer to
        pay for taxes, hazard insurance, mortgage insurance, lease payments, and other
        items as they become due. Also known as reserves.
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      Index
        A published interest rate against which lenders measure the difference between
        the current interest rate on an adjustable rate mortgage and that earned by other
        investments (such as one- three-, and five-year U.S. Treasury security yields, the
        monthly average interest rate on loans closed by savings and loan institutions, and
        the monthly average costs-of-funds incurred by savings and loans), which is then
        used to adjust the interest rate on an adjustable mortgage up or down.
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      Investment Property
        Property used for investment purposes.
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      Investor
        A money source for a lender.
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      Involuntary Lien
        A lien imposed against property by law or legal action without the consent of
        an owner. Examples include taxes, special assessments, federal income tax 
        liens, judgment liens, mechanics liens and materials liens.
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      Jumbo Loan
        A loan which is larger (more than $300,700) than the limits set by the Federal
        National Mortgage Association and the Federal Home Loan Mortgage Corporation.
        Because jumbo loans cannot be funded by these two agencies, they usually carry
        a higher interest rate.
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      Liabilities
        A person's financial obligations. Liabilities include long-term and short-term debt.
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      Lien
        A claim upon a piece of property for the payment or satisfaction of a debt or
        obligation.
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      Loan
        A sum of borrowed money (principal) that is generally repaid with interest.
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      Loan-to-Value Ratio
        The relationship between the amount of the mortgage loan and the appraised value
        of the property expressed as a percentage.
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      Market Value
        The highest price that a buyer would pay and the lowest price a seller would accept
        on a property. Market value may be different from the price a property could actually
        be sold for at a given time.
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      MIP (Mortgage Insurance Premium)
        It is insurance from FHA to the lender against incurring a loss on account of the
        borrower's default.
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      Mortgage
        A legal document that pledges a property to the lender as security for payment of a
        debt.
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      Mortgage Insurance
        Money paid to insure the mortgage when the down payment is less than 20 percent. 
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      Negative Amortization
        Occurs when your monthly payments are not large enough to pay all the interest due
        on the loan. This unpaid interest is added to the unpaid balance of the loan. The
        danger of negative amortization is that the home buyer ends up owing more than the
        original amount of the loan.
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      Note
        A legal document that obligates a borrower to repay a mortgage loan at a stated
        interest rate during a specified period of time.
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      Owner Occupied
        Designation given to property used as the owner’s residence.
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      P & L Statement
        An abbreviation for profit and loss.
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      Pre-Approval
        The process of determining how much money you will be eligible to borrow before
        you apply for a loan.
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      Prepayment Penalty
        Money charged for an early repayment of debt. Prepayment penalties are allowed
        in some form (but not necessarily imposed) in many states.
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      Principal Balance
        The outstanding balance of principal on a mortgage not including interest or any
        other charges.
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      Principal, Interest, Taxes, and Insurance (PITI)
        The four components of a monthly mortgage payment. Principal refers to the part
        of the monthly payment that reduces the remaining balance of the mortgage. Interest
        is the fee charged for borrowing money. Taxes and insurance refer to the monthly
        cost of property taxes and homeowners insurance, whether these amounts that are
        paid into an escrow account each month or not.
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      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.
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      Refinance
        Obtaining a new mortgage loan on a property already owned. Often to replace 
        existing loans on the property.
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      Second Mortgage
        A mortgage made subsequent to another mortgage and subordinate to the first one.
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      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. 
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      Underwriting
        The decision whether to make a loan to a potential home buyer, or loan applicant 
        based on credit, employment, assets, and other factors and the matching of this
        risk to an appropriate rate and term or loan amount.
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      Zoning Ordinances
        The acts of an authorized local government establishing building codes, and setting
        forth regulations for property land usage.
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