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Glossary
“A “
“A” Credit Buyer:
Consumers with impeccable credit, who can obtain a loan from traditional lenders. Typically a credit score of 725+ is considered “A”.
Acceleration Clause:
A common provision of a mortgage or note providing the holder with the right to demand that the entire outstanding balance is immediately due and usually payable in the event of default.
Accrued Interest:
Interest earned but not yet paid.
Adjustable Rate Mortgage Loans (ARM):
Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. These mortgages loans must specify how their interest rate changes, usually in terms of a relation to a national index such as (but not always) Treasury bill rates. If interest rates rise, your monthly payments will rise. An interest rate cap limits the amount by which the interest rate can change; look for this feature when you consider an ARM loan.
Agreement of Sale:
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
Alternative Documentation:
A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application.
Amortization:
Repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.
Annual Percentage Rate ( APR ):
The cost of credit expressed as a yearly rate. The Annual percentage rate is often not the same as the interest rate. It is a percentage that results from an equation considering the amount financed, the finance charges, and the term of the loan.
Application:
An initial statement of personal and financial information required to apply for a loan.
Appraisal:
A written estimate of a property’s current market value completes be an impartial party with knowledge of real estate markets.
Articles of Incorporation:
A document filed with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation; the two documents together become the Charter of Incorporation.
Asset:
Anything having commercial or exchange value that is owned by a business, institution or individual. Assets might include – real estate, equipment, receivables, and trademarks.
Assign ability:
The ability to assign (or sell) an income stream to another individual or business.
Assignment:
The transfer of ownership, rights, or interests in property by one person, the assignor, to another, the assignee.
Assumption:
A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.
“B “
“B” Credit Buyers:
These buyers have less then perfect credit usually having a few late payments or very old issues regarding credit. “B “credit buyer has a score between 650 – 725.
Balloon Mortgages:
Balloon Mortgage loans are short-term fixed-rate loans with fixed monthly payments for a set number of years followed by one large final balloon payment (“the Balloon”) for all the remainder of the principal. Typically, the balloon payment may be due at the end of 5, 7, or 10 years. Borrowers with balloon loans may have toe right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.
Bankruptcy:
A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts.
Beneficiary:
The person or party entitled to receive the benefits or a transaction.
Bill of Sale:
A Document used to transfer the title of certain goods from seller to buyer.
Blanket Mortgage:
A mortgage that covers more then one parcel of real estate.
Borrower (Mortgagor):
An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.
Broker:
An individual who brings buyers and sellers together and assists in negotiating contract for a client.
Buy-Down Mortgage:
A mortgage loan with a below-market rate for a period of time.
“C”
“C” Credit Buyers:
These buyers typically have shown a poor pay history on several accounts for a period of time. Usually cased by job loss, medical reasons. Sometimes the low credit score will be a reflection of high balances on accounts. Credit score range from 580-649.
Call Option:
A provision of a note which allows the lender to require repayment on the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.
Cash Flow:
The flow of cash through a business or household. Cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.
Chattel Mortgage:
A Mortgage on personal property, given to secure a dept. typically used in the sale of a business or Mobile Homes.
Collateral:
Something of value (land, a home, a car, etc.) that is pledged as security to ensure the payment of a dept. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize the collateral.
Collectibility:
Refers to the funding source’s ability to collect future income stream payments once they are purchased.
Commercial Notes:
Include notes on mobile home parks, office buildings, apartment buildings, shopping centers, businesses, parking lots, and government buildings.
Commitment of Title:
Written opinion of the status of title to a property, given by an attorney or title company. This commitment does not offer the protection given by title insurance.
Corporation:
A legal entity, chartered by a U.S. state or the federal government, and separate distinct from the persons who own it. It is regarded by the courts as an artificial person; it may own property, incur debts, sue or be sued.
Creditor:
One who is owed payments on a debt by a debtor.
“D”
Deed:
Legal document by which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.
Deed of Trust:
A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full.
Default:
Failure to meet legal obligations in a contract, including failure to make payments on a loan.
Delinquency:
Failure to make payments as agreed in the loan agreement.
Down Payment:
The percentage of your home’s purchase price you need to supply up front in cash to get your loan. You should strive for 5%-10% down payment.
Due Diligence:
Exhaustive research on a transaction, income stream, client, and or payor. Due diligence may involve credit checks, appraisals, UCC searches, Lien searches, or onsite visits with clients.
Due-on-Sale Clause:
Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon the sale of the property.
“E”
Earnest Money:
Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.
Equity:
The difference between the current market value of a property and the total debt obligations against the property.
Escrow:
The system by which money documents, personal property, or real property is held in trust for another party by a disinterested third party until the terms and conditions of the escrow instructions are completed or terminated.
Escrow Account:
An account held by the lender to which the borrower pays a monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds in behalf of the borrower when they become due. Also known as impound account.
Escrow Agent:
A person with fiduciary responsibility to the buyer and seller, or the borrower and lender, to ensure that the terms of the purchase/sale or loan are carried out.
“F”
Face Value:
The current principle balance on an income stream.
Fee Simple:
Absolute ownership of real property.
First Mortgage:
A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.
Fixed Rate:
An interest rate which is fixed for the term of the loan.
Fixed Rate Loans:
Fixed-rate loans have interest rates that do not change over the loan. As a result, monthly payments for principle and interest are also fixed for the life of the loan. With a fixed rate loan, you will have predictable monthly payments for as long as you have the loan.
Flood Insurance:
Insurance that compensate for physical damage to a property by flood. Typically not covered under standard hazard insurance.
Forbearance:
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.
Foreclosure (or Repossession):
Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default.
Funding Source:
An individual investor or investment company that buys income streams.
“G”
Good Faith Estimate:
Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.
Grace Period:
Period of time during which a loan payment may be made after its due date without incurring a late penalty. The period is specified as part of the terms of the loan in the note.
Gross Income:
Total income before taxes or expenses are deducted.
“H”
Hazard Insurance:
Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.
HUD:
Housing and Urban Development. A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.
HUD-1 Uniform Settlement Statement:
A Standard from which itemizes the closing costs associated with purchasing a home or refinancing a loan.
Hypothecation:
Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan.
“I”
Impound Account:
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses impound account funds on behalf of the borrower when they become due. (Also known as Escrow Account).
Income Stream:
A future payment or series of payments, or a debt that one party owes to another party.
Interest:
Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed.
Interest Rate:
The annual rate of interest on the loan, expresses as a percentage of 100.
Interest Rate Cap:
Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.
Investment-to-value ratio:
A measure of how secure a creditor’s position is and how likely the creditor is to recoup all of his or her money in the event of a foreclosure.
“J”
Joint Liability:
Liability shared among two or more people, each of whom is liable for the full debt.
Joint Tenancy:
A form of ownership of property giving each person equal interest in the property, including rights of ownership.
Jumbo Loan:
A mortgage larger than the $240,000.00 limit is set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Junior Mortgage:
A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first.
“L”
Late Charge:
Penalty Paid by a borrower when a payment is made after the due date.
Lender:
The bank, mortgage company, or mortgage broker offering the loan.
Leverage:
The ratio of debt to total assets.
Lien:
Any sort of charge or encumbrance against an item of property that secures the payment of a debt.
Limited Liability Company (LLC):
A form of business structure designed to combine the best of corporate and partnership attributes into one entity.
Loan Application:
An initial statement of personal and financial information required to apply for a loan.
Loan Application Fee:
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process, or the fee may be in addition to these late charges.
Loan-to-Value Ratio:
An expression of the loan as a percentage of the total appraised value of a piece of real estate. For residential, first mortgage liens in the U.S. to be conforming to Fannie Mae guidelines the LTV must be less or equal to 80%.
“M”
Market Value:
The price at which a ready, willing, and informed person would by something; the price property would command in the current market.
Mortgage:
A legal document by which real property is pledged as security for the repayment of a loan.
Mortgage Broker:
An individual or company that arranges financing for borrowers.
Mortgage Insurance:
Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home’s appraised value. (Note, however, that FHA and VA loans have different insurance guidelines).
Mortgage Loan:
A loan for which real estate serves as collateral to provide fro repayment in case of default.
Mortgage Note:
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.
Mortgagee:
The lender in a mortgage loan transaction.
Mortgagor:
The borrower in a mortgage loan transaction.
“N”
Negative Amortization:
A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.
Non-Assumption Clause:
A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.
Note:
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.
Notice of Default:
]Written notice to a borrower that a default has occurred and that legal action may be taken.
“O”
Owner Financing:
A type of financing in which the seller of a tangible item accepts a promissory note as a portion of the purchase price. Also called seller financing.
“P”
Partnership:
A common form of joint ownership of a business.
Payee:
Person or business that has the right to receive a payment or series of payments and is interested in selling that income stream for cash. (Also called seller or client).
Payor:
The person, company, or government responsible for making payments on an income stream.
Partial:
Any part of a payment stream that is less than the full amount due.
Per Diem Interest:
Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month).
Periodic Payment:
Regularly scheduled amount due for (1) Principal and Interest (P & I) under the note , and (2) any notes made under a security instrument.
Personal Guaranty:
A contractual agreement between a funding source and a seller, whereby the seller assumes personal responsibility and liability for the obligations of the income stream.
PITI:
>Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment.
Portfolio:
>A group of income streams of the same type.
Power of Attorney:
Legal document authorizing one person to act on behalf of another.
Pre-approval:
The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower’s credit history. Information submitted during pre-approval is subject to verification at application.
Prepayment:
Full or partial repayment for a loan paid off in advance of the contractual due date.
Prepayment Penalty:
Fee charged by a lender for a loan paid off in advance of the contractual due date.
Pre-qualification:
The process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application.
Principal:
The amount of debt, not counting interest, left on a loan.
Privately Held:
Owed to a private individual or business rather than to a bank or other financial institution.
Profit and Loss Statement:
}A financial statement that shows a historical record of a business’ income and expenses.
Promissory Note:
A written promise to pay a specified amount to a specified party over a certain period of time.
Purchase Agreement:
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
“R”
Real Property:
Land and any improvements permanently affixed to it, such as buildings.
Reconveyance:
The transfer of property back to the owner when a mortgage loan is fully repaid.
Recording:
The act of entering documents concerning title to a property into the public records.
Recording Fee:
Money paid to an agent for entering the sale of a property into the public records.
Refinancing:
The process of paying off one loan with the proceeds from a new loan secured by the same property.
Reserve:
An amount a funding source holds in its account to cover potential payment defaults. After a certain time period has passed, the funding source rebates the reserve to the clients less any fees or charges for delinquency. Also called a bad debt reserve.
RESPA:
Real Estate Settlement Procedures Act. RESPA is a federal law that gives consumers the right to review information about loan settlement costs. The law gives you the right to review this information after you apply for a loan, and again at loan settlement. The law only obliges lenders to provide these settlement costs after application.
Right to Rescission:
Under the provisions of the Truth-in-Lending Act, the borrower’s right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage.
“S”
Sales Agreement:
Contract signed by a buyer and seller stating the terms and conditions under which a property will be sold.
Satisfaction:
The discharge of an obligation by paying a party what is due (i.e.: the satisfaction of an IRS lien or the satisfaction of a mortgage).
Seasoning:
The lengths of time payments have been made on a note or other debt instrument.
Secondary Market:
The marketplace where individuals and businesses can sell privately held income streams to fund sources for cash.
Second Mortgage:
}An additional mortgage placed on a property that has rights that are subordinate to the first mortgage.
Securitization:
The bundling and resale of debt instruments to investors; permitted only for parties licensed and regulated by the SEC.
Seller:
The person or company that is holding a debt instrument and wants to sell it.
Servicing:
The collection of payments of interest and principal, and trust fund items such as fire insurance, taxes, etc., on a note by the borrower in accordance with the terms of the note. Servicing by the lender also consist of operational procedures covering accounting, book keeping, insurance, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis.
Settlement (or closing):
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction.
Settlement Costs:
Also known as closing costs, these costs are for services that must be preformed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney’s fees, taxes, and surveying fees.
Sole Proprietorship:
A business owned and operated by an individual.
Survey:
A measure of land, prepared by a licensed surveyor, showing a property’s boundaries, elevations, improvements, and relationship to surrounding tracts.
Sweat Equity:
Value added to a property in the form of labor or services of the owner rather than cash.
“T”
Tax Impound:
Money paid to and held by a lender for annual tax payments.
Tax Lien:
Claim against a property for unpaid taxes.
Tax Sale:
Public sale of property by a government authority as a result of non-payment of taxes.
Term:
The period of time between the beginning loan date on the legal documents and the date the entire balance is due.
Time Value of Money:
Concept that addresses the way the value of money changes over a period of time.
Title:
Document which gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.
Title Commitment:
A commitment on the part of the insurer, once a title search has been conducted, to provide the proposed insured with a title insurance policy upon closing.
Title Company:
A company that insures title to the property.
Title Insurance:
Insurance which protects the lenders (lender’s policy) or the buyer (owner’s policy) against loss due to disputes over ownership of a property.
Title Policy:
An insurance that insures a party against loss due to a defective title.
Title Search:
Examination of municipal records to ensue that the seller is the legal owner of a property and that there are not liens or other claims against the property.
Transfer Tax:
Tax paid when title passes from one owner to another.
Truth-in-Lending Act:
Federal law requiring written disclosure of the terms of a mortgage (including the APR) and other charges) by a lender to a borrower after application. Also requires the right to rescission period.
“U”
Underwriting:
In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.
Unseasoned:
A lease or note that has had few, if any, payments made.
“V”
Variable Rate:
Interest rate that changes periodically in relation to an index.
Verification of Deposit (VOD):
Document signed by the borrower’s bank or other financial institution verifying the borrower’s account balance and history.
Verification of Employment (VOE):
Document signed by the borrower’s employer verifying the borrower’s position and salary.
Verification of Rent (VOR):
Document signed by the borrower’s landlord verifying rental payments.
“W”
Waiver:
Voluntary relinquishment or surrender of some right or privilege.
“Z”
Zoning Ordinances (or Zoning Regulations):
Local law establishing building codes and usage regulations for properties in a specified are.
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