|
|
1031 /
Buying preconstruction |
Glossary of Terms
|
Frequently Asked Questions (FAQ)
1
2 |
|
GLOSSARY - LETTERS K THROUGH Z
- LIEN: The charge against a property, thus making
it security for the payment of a loan, judgment, mortgage,
or taxes. It is also a type of encumbrance on a property. A
Personal Lien is against all the property owned by the
indebted person.
- LIFE OF LOAN CAP: The limitation on the maximum
interest rate that can be charged on an adjustable-rate
mortgage during the term of the loan.
- LOAN APPLICATION: Documentation required by a
lender before issuing a loan commitment.
- LOAN COMMITMENT: An agreement to lend a
specified amount of money, at specified terms and
conditions.
- LOAN-TO-VALUE RATIO (LTV): The proportion of the
amount borrowed compared to the cost or value of the
property purchased.
- MARGIN: The constant amount added to the value
of the index (percentage of interest) for the purpose of
adjusting the interest rate on an adjustable-rate mortgage.
- MATURITY: The due date of a loan.
- MORTGAGE: The written instrument that creates a
lien upon property as security for the payment of a
specified loan. All mortgages are valued according to the
chronological order in which they are put placed onto a
property. The first mortgage on a property is called a
"first" in time, the next mortgage is "second" in time, and
the next one after that is called "third" in time, and so
on. This order is important because in the event of
foreclosure, all the money from a foreclosure will go to
pay off the lender of the first. Only if there is any money
left over will it go to pay off the holder of the second
and the third. The earlier the number, the more superior
the mortgage is considered. Usually, when a first mortgage
is paid off, the second takes the place of the first, and
the third becomes the second, and so on.
- MORTGAGE CONSTANT: The percentage ratio between
the annual debt service and the loan principal. The formula
is expressed in this way: Annual Debt/Loan Principal =
mortgage constant.
- MORTGAGE LIEN: The encumbrance on a property
used to secure a loan. The holder of the lien has a claim
to the property in case of default. The priority itself
depends upon the agreements and conditions of the loan.
- NEGATIVE AMORTIZATION: The increase in the
outstanding balance of a loan resulting from failure to
make the monthly installments on a loan.
- NOTE: The written instrument that acknowledges a
loan and states a promise to pay.
- ORIGINATION FEES: The charges to the borrower to
cover the costs of issuing the loan, such as, credit
checks, appraisals and title expenses.
- PERSONAL PROPERTY: Any property that does not go
with the land. This includes cars, clothing, and furniture.
Some items are disputable, such as, appliances and floor
and wall coverings.
- PITI: Principal, Interest, Taxes and Insurance.
These are the monthly payments required for most home
mortgage loans.
- POINTS: A point is equal to one percentage (1%)
of a mortgage amount. Lenders use the term "basis points".
A basis point is one hundredth of a point. Thus, for
example, ½% is 50 basis points.
- PREPAYMENT PENALTY: Fees that must be paid by
the borrower for retiring (see Glossary) a loan early.
- PRINCIPAL: The owner of a property. A broker's
or agent's client. The amount of money raised by a
mortgage, separate from the interest paid upon it.
- PRINCIPAL AND INTEREST PAYMENT (P&I): Monthly
payment that includes the interest charges for the period,
plus an amount applied to amortization of the principal
balance.
- PRIVATE MORTGAGE INSURANCE (PMI): Insurance on a
conventional loan, provided by a private insurance company.
- PURCHASE MONEY MORTGAGE: A mortgage given by a
buyer to a seller in partial payment of the purchase price
of property.
- REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA):
This act requires lenders to provide the buyer with
specified information regarding the cost of securing
financing, along with a break-down of actual costs.
- REAL PROPERTY: Another term for real estate,
including the house and the adjoining land.
- REFINANCE: The substitution of a new loan for an
old loan.
- RETIRING (a debt): To fully pay off the
principal on a loan
- SAVINGS AND LOANS ASSOCIATIONS (S&Ls):
Institutions that specialize in giving, servicing, and
holding mortgage loans, primarily on owner-occupied,
residential property.
- SECOND MORTGAGE: A subordinated lien, created by
a mortgage loan, over the amount of a first mortgage.
Second mortgages are often used to reduce the amount of a
cash down payment.
- SOCIETY OF REAL ESTATE APPRAISERS (SREA): A
professional association to which most qualified appraisers
belong. It is best to use an SREA designated appraiser.
- SUBJECT PROPERTY: The property being appraised.
- SUBJECT-TO MORTGAGE: Condition in which the
buyer takes title to a mortgaged property but is not
personally liable for the payment of the amount due. The
buyer does have to make payments in order to keep the
property. In case of default, only the buyer's equity in
the property is lost.
- SUBORDINATION CLAUSE: A clause that can be
inserted into a mortgage document to keep the mortgage
secondary to any other mortgages. (See Mortgage for more
details).
- TAX BRACKET: Marginal rate for income taxes. It
is the percentage of each additional dollar in income
required to be paid as income taxes.
- TEASER RATE: Interest rate charged on an
adjustable-rate mortgage for the initial adjustment
interval that is usually much lower than the fully indexed
rate. The Teaser Rate is an incentive to encourage
borrowers to accept an adjustable-rate mortgage loan.
Usually, the interest rate jumps back to the indexed rate
at the adjustment date.
- TERM: The period of time during which principal
and interest payments must be made on a regular basis.
- TITLE: This is evidence that you actually have
the right of ownership of real property. It takes the form
of a deed that specifies the kind of title you have
(whether joint, common, or some other).
- TITLE INSURANCE POLICY: An insurance policy that
covers the title to your home. It may list you or the
lender as a beneficiary. This policy is issued by a title
insurance company, or by an attorney (underwritten by an
insurance company). The policy states that if for any
covered reason your title is defective, the company will
correct the title or pay you up to a specified amount
(usually the purchase price or mortgage). Before issuing
this policy, an insurance company fully investigates the
chain of title and notifies all parties of any defect (such
as liens). These must then be paid off.
- TRANSACTION COSTS: Costs associated with buying
and selling a home. These include: Appraisal Fee, Brokerage
Commission (paid by the seller), Legal Fees, Mortgage
Discount Points, Mortgage Origination Fees, Recording Fees,
Survey Fees, and Title Search Fees.
- VA LOANS: Home loans guaranteed by the Veterans
Administration (VA) under the Servicemen's Readjustment Act
of 1944 and its later revisions. The VA guarantees payment
to the lender in case of default. The home must be the
buyer's principal place of residence.
- WRAP-AROUND OR WRAP FINANCING: This is a
combination of two mortgages. If the lender is the seller,
then he does not get all cash. Instead of giving the
buyer/borrower a simple second mortgage, the lender
combines the balance due on a previous, existing mortgage
(usually a first) with an additional loan. In this way, the
wrap-around includes both the second and the first
mortgages. The borrower then makes payments to the lender,
who keeps part of the payment, and then makes payments on
the existing mortgage. The wrap is typically used by a
seller who either does not trust the buyer to make payments
on a first, or who wants to get a higher interest rate.
|
|
|
| |
|
