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Acceleration Clause
The clause in a mortgage that hastens the time a debt becomes due when the borrower does
not honor the terms of the mortgage agreement.
Ad Valorem
A Latin term meaning "according to value." Used in connection with taxation.
Alienation Clause (Due on Sale Clause)
The clause in a mortgage that calls a mortgage loan due upon sale or transfer of the
property.
Amortization
The gradual reduction of a loan through periodic payments of principle thereby liquidating
the debt.
Annual Percentage Rate (APR)
Fees, interest rate, points, and other charges expressed as a percentage of the total
amount of the loan.
Appraisal
Places an estimate of value on real property.
Arrears
Payment after the fact. For example, real estate taxes are paid after the year has passed.
Assessed Value
The established value of real property for the purpose of assessing real property taxes.
Assumption of Mortgage
When a buyer assumes the liability under an existing note secured by a mortgage.
Blanket Mortgage
A mortgage secured by more than one property pledged as collateral.
Balloon Mortgage
A mortgage whose periodic payments do not fully liquidate the loan. The balance is due in
a lump sum at the end of the term.
Commitment
A written promise by a lender to make a specific loan to a particular borrower.
Contract for Deed
A method of financing real property in which the buyer obtains possession but the seller
retains title.
Conventional Loan
A traditional fixed-rate, amortized loan that is neither FHA insured or VA guaranteed.
Counteroffer
A return offer made by an individual that rejected a previous offer.
Deed
A written instrument under seal, duly executed and delivered used to convey the title of
real property from one party to another.
Deed Restriction
A limitation placed in a deed restricting the use of real property.
Default
A loan is in default when the borrower does make the mortgage payment, real estate tax
payment, or hazard insurance payment.
Depreciation
The gradual reduction in value of an asset.
Due on Sale Clause (Alienation Clause)
The clause in a mortgage that calls a mortgage loan due upon sale or transfer of the
property.
Easement
Entitles a non-owner in the use of another's land for some purpose, privilege, or benefit.
Examples include utility poles and driveways.
Encroachment
An improvement on real property that illegally intrudes upon another's property.
Equity
The market value of real property less all liens.
Escrow
Money deposited by two or more persons with a third person. The money is released upon the
completion of a specific act or event.
Federal Housing Administration (FHA)
A federal agency that insures lenders against mortgage loan defaults.
Federal National Mortgage Association (FNMA)
A privately owned corporation created by Congress that purchases and sells government
underwritten residential mortgages.
Federal Reserve
The government institution that governs the operation of all nationally chartered banks.
First Mortgage
A mortgage that has a first lien position on property pledged as security.
Foreclosure
The legal process whereby a current owner of property is deprived of ownership.
Government National Mortgage Association (GNMA)
The government agency that buys and sells FHA and VA loans in the secondary market.
Hazard Insurance
A contract whereby one party agrees to compensate another for loss of property due to
hazards such as fire, flood, or natural disasters.
Home Equity Loan
A loan based upon the equity in real property.
Leasehold
An interest in real property evidenced by a lease.
Legal Description
An adequate description of a parcel of land in order to identify the property.
Leverage
The use of borrowed funds to increase the return on a cash investment. The rate of return
must be higher than the cost of borrowed money if the leverage is to be profitable.
Lien
A claim that one party has upon the property of another as security for some debt or
charge.
Loan To Value (LTV)
The ratio between a mortgage loan and a property's market or appraised value.
Metes and Bounds
The description of real property in a deed using distances and directions.
Mortgage
A lien against real property released upon payment or performance according to the terms
of the agreement.
Mortgage Broker
An agent for fee that brings a borrower and lender together to affect a loan transaction.
Mortgage Insurance Premium (MIP)
Insurance paid by the borrower under an FHA loan. Furnished by the federal government to
insure the loan in the event of default. FHA loans with a LTV greater than 90% require
MIP.
Mortgage Note
A promissory note secured by a mortgage on real property.
Mortgagee
The party, usually the lender, who holds the mortgage as security for a loan.
Mortgagor
The party, the borrower, who gives the mortgage as security for a debt.
Negative Amortization
A loan balance that increases over time rather than decreasing.
Net Worth
Equals assets minus liabilities. The amount of equity in a business or personal portfolio.
Note
A debt instrument that states the loan amount, interest rate, term, method of
repayment, and a promise to pay.
Origination Fee
Charged by the lender for originating a mortgage loan. Typically it covers credit
inspection, appraisal, processing, and various other administrative costs.
Package Mortgage
In addition to the home, this loan finances the purchase of personal items such as the
refrigerator, washer & dryer, ac, and other appliances.
Payment Cap
The limit on what an adjustable rate mortgage's payment can be.
PITI
Abbreviation for principle, interest, taxes, and insurance contained in a mortgage
payment. Principle and interest are applied to the note while taxes and insurance are
placed in escrow.
Prepayment Penalty
A fee paid by the borrower for repaying a loan prior to its maturity.
Principal
The amount of a loan upon which interest is charged.
Qualification
The process of obtaining sufficient information in determining a buyer's purchasing
capacity.
Reverse Mortgage
A mortgage in which a lender makes monthly payments to a borrower using a mortgage-free
property as collateral.
Satisfaction
A written instrument that evidences payment in full of a mortgage debt.
Second Mortgage
A mortgage that ranks immediately behind a first mortgage in priority.
Term Mortgage
A mortgage in which interest only is paid. The entire amount of the loan is due upon
maturity of the loan.
Title
Just possession of property.
Trust Deed
A written agreement that conveys property from an owner to a trustee for accomplishing the
written objectives of the agreement.
Underwriting
The process of determining a borrower's ability to repay a loan through financial
analysis.
Usury
The act of charging interest on a loan beyond the legal limit.
Veterans Administration (VA)
The federal agency that guarantees lenders against default on loans made to qualified
veterans.
Warranty Deed
A deed that contains the strongest and most comprehensive language in conveying title from
a seller to a buyer.
Wraparound Mortgage
A junior mortgage that secures a debt that includes a balance from an existing senior
mortgage in addition to an amount due to the wraparound mortgagee.
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