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HUD.GOV - Loan and finance glossary Category: Economy and Finance > Loans and finance terms Date & country: 30/05/2011, USA Words: 356

Abstract of Title
documents recording the ownership of property throughout time.

Acceptance
the written approval of the buyer's offer by the seller.

Acceleration
the right of the lender to demand payment on the outstanding balance of a loan.

Adjustment Interval
the time between the interest rate change and the monthly payment for an ARM. The interval is usually every one, three or five years depending on the index.

Adjustment Index
the published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.

Adjustment Date
the actual date that the interest rate is changed for an ARM.

Adjustable-Rate Mortgage (ARM)
a mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).

Additional Principal Payment
money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.

Affidavit
a signed, sworn statement made by the buyer or seller regarding the truth of information provided.

Amortization
a payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

American Society of Home Inspectors
the American Society of Home Inspectors is a professional association of independent home inspectors. Phone

Amenity
a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

Annual Percentage Rate (APR)
a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.

Annual Mortgagor Statement
yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.

Application
the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appreciation
an increase in property value.

Appraiser
a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appraised Value
an estimation of the current market value of a property.

Appraisal Fee
fee charged by an appraiser to estimate the market value of a property.

Appraisal
a document from a professional that gives an estimate of a property's fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Application Fee
a fee charged by lenders to process a loan application.

ARM
Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.

Arbitration
a legal method of resolving a dispute without going to court.

Assumption Clause
a provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.

Assumable Mortgage
when a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance t...

Assets
any item with measurable value.

Assessor
a government official who is responsible for determining the value of a property for the purpose of taxation.

Assessments
the method of placing value on an asset for taxation purposes.

Assessed Value
the value that a public official has placed on any asset (used to determine taxes).

Asking Price
a seller's stated price for a property.

As-is Condition
the purchase or sale of a property in its existing condition without repairs.

Automated Underwriting
loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

Average Price
determining the cost of a home by totaling the cost of all houses sold in one area and dividing by the number of homes sold.

Bankruptcy
a federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Balloon Payment
the final lump sum payment due at the end of a balloon mortgage.

Balloon Loan or Mortgage
a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.

Balance Sheet
a financial statement that shows the assets, liabilities and net worth of an individual or company.

Back to Back Escrow
arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.

Back End Ratio (debt ratio)
a ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

Biweekly Payment Mortgage
a mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

Borrower
a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Broker
a licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. A real estate broker is someone who helps find a house.

Bridge Loan
a short-term loan paid back relatively fast. Normally used until a long-term loan can be processed.

Buy Down
the seller pays an amount to the lender so the lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.

Building Code
based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget
a detailed record of all income earned and spent during a specific period of time.

Casualty Protection
property insurance that covers any damage to the home and personal property either inside or outside the home.

Cash-Out Refinance
when a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.

Cash Reserves
a cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Capital or Cash Reserves
an individual's savings, investments, or assets.

Capital Improvements
property improvements that either will enhance the property value or will increase the useful life of the property.

Capital Gain
the profit received based on the difference of the original purchase price and the total sale price.

Capacity
The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.

Cap
a limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

Callable Debt
a debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.

Certificate of Title
a document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Charge-Off
the portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Chapter 7 Bankruptcy
a bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.

Chapter 13 Bankruptcy
this type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms within a 3 to 5 year period.

Cloud On The Title
any condition which affects the clear title to real property.

Closing Costs
fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer's closing costs is 2 to 4 percent of the ...

Closing
the final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.

Clear Title
a property title that has no defects. Properties with clear titles are marketable for sale.

Co-Borrower
an additional person that is responsible for loan repayment and is listed on the title.

Covenants
legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.

Counter Offer
a rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.

Cost of Funds Index (COFI)
an index used to determine interest rate changes for some adjustable-rate mortgages.

Co-Signer
a person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.

Co-Signed Account
an account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.

Cooperative (Co-op)
residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

Convertible ARM
an adjustable-rate mortgage that provides the borrower the ability to convert to a fixed-rate within a specified time.

Conversion Clause
a provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. Usually conversions are allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. There may be additional cost for this clause.

Conventional Loan
a private sector loan, one that is not guaranteed or insured by the U.S. government.

Contingency
a clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.

Construction Loan
a short-term, to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process. For example, once a sub-contractor pours the foundation and it is approved by inspectors the lender will pay for their service.

Consideration
an item of value given in exchange for a promise or act.

Conforming loan
is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Condominium
a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.

Compensating Factors
factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.

Comparative Market Analysis (COMPS)
a property evaluation that determines property value by comparing similar properties sold within the last year.

Common Stock
a security that provides voting rights in a corporation and pays a dividend after preferred stock holders have been paid. This is the most common stock held within a company.

Commission
an amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.

Collection Account
an unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower's credit report.

Collateral
security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

Creditworthiness
the way a lender measures the ability of a person to qualify and repay a loan.

Creditor
the lending institution providing a loan or credit.

Credit Union
a non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest and you have to become a member to use the available services.

Credit Score
a score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 - 840

Credit Risk
a term used to describe the possibility of default on a loan by a borrower.

Credit Report
a report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

Credit Repair Companies
Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.

Credit Related Losses
foreclosed property expenses combined with charge-offs.

Credit Related Expenses
foreclosed property expenses plus the provision for losses.

Credit Loss Ratio
the ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.

Credit History
a record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Grantor
the lender that provides a loan or credit.

Credit Enhancement
a method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.

Credit Counseling
education on how to improve bad credit and how to avoid having more debt than can be repaid.

Credit Bureau
an agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.

Credit
an agreement that a person will borrow money and repay it to the lender over time.