REAL ESTATE and FINANCING TERMS/PHRASES
Adjustable Rate Mortgage: A mortgage agreement whose interest rate adjusts
with a fluctuating market and the terms agreed upon in the note.
Adverse Action: A written statement of credit denial sent to the purchaser
no late than 30 days after a completed mortgage application package has
been
received.
Amenities: Non-tangible factors affecting the appeal of a property such
as
scenic beauty, freedom from nuisances, climate, street layout and
architectural design.
Amortization: The act of liquidating or extinguishing an indebtedness or
charge by periodic payments made to a creditor or account.
Appraisal: A written report, or the process by which a report is made, made
by a qualified person stating an estimate of value by a specific date.
"As Is": The value of a property based on its present condition.
Assets: Accumulated wealth of a person, including cash, bank accounts,
stocks and bonds, real estate and personal property.
Basis Points: One basis point is the equivalent of 1/100th of a percent;
100
basis points = 1 percent of the mortgage amount.
Buydown: An advanced payment to a lender on a mortgage loan by a third party
(seller, buyer or builder) to reduce the monthly payments to the mortgagor
for a specific period of time or the length of the mortgage.
Certificate of Reasonable Value: A document issued by the V. A. establishing
the maximum value and loan amount for a V.A. guaranteed mortgage.
Conditional Commitment: A commitment issued by the FHA on a specific
property establishing value, maximum mortgage amount, and general and
specific conditions for a FHA insured mortgage.
Condominium: A form of ownership. The absolute and individual ownership of an apartment or a
unit
by a legal description
of the air space which the unit occupies, plus an
undivided interest in the ownership of the common elements, which are owned
jointly with the other condominium owners.
Cost Approach: A method of determining value of a property by estimating
the
replacement or reproduction cost of the improvements, deducting estimated
depreciation, and then adding market value of the land.
Direct Endorsement: The FHA program that allows lenders to approve and
settle loans without prior review.
Economic Life: The time period a property will yield a return on the
investment over and above the economic or ground rent due to the land.
Equal Credit Opportunity Act (ECOA): The federal law prohibiting lenders
from discrimination in lending policy by reason of race, color, religion,
national origin, sex, marital status, age, if any income is derived from
public assistance, or if the applicant has exercised any rights under the
Consumer Protection Act.
Fair Credit Reporting Act: This federal law exercises considerable control
over the use of credit reports by mortgage lenders, limiting release of
credit information to the mortgagee, investors, and the insuring agency.
Fair Market Value: The price at which a property is transferred between
a
willing buyer and a willing seller.
Federal Home Loan Mortgage Corporation (FHLMC): A private corporation
authorized by Congress which sells participation certificates (PC's) secured
by pools of conventional mortgage loans. It also sells Government National
Mortgage Association bonds to raise funds to finance the purchase of
mortgages. This is popularly known as Freddie Mac or the Mortgage
Corporation.
Government National Mortgage Association (GNMA): On September 1, l968,
Congress enacted legislation to partition FNMA into two continuing corporate
entities. GNMA has assumed responsibility for the special assistance loan
program, and the management and liquidation function of the older PNMA.
Also, GNMA administers the mortgage backed securities program which channels
new sources of funds into residential financing through the sale of
privately issued securities carrying a GNMA Guaranty. This is popularly
known as Ginnie Mae.
Graduated Payment Mortgage: A mortgage having an artificially low monthly
payment during the early years, which increases annually for a given number
of years and then levels off for the remaining term.
Income Approach: The process of estimating the value of an income producing
property by capitalization of the annual net income expected to be produced
by the property during its remaining useful life.
Investment Quality: A mortgage loan that would generally meet the standards
imposed by investors which purchase loans.
Liabilities: Debts and obligations that a person may owe, including, but
not
limited to, installment loans, charges, and mortgages.
Loan -To-Value Ratios (LTV): The relationship between the amount of the
mortgage and the lower of the sale price or appraised value of the security
expressed as a percentage.
Market Data Approach: The process of estimating the value of a property
through the examination and comparison of actual sales of comparable
properties. This is also referred to as the SALES COMPARISON ANALYSIS
APPROACH.
Monthly Housing Expense: Typically, will include principle, interest, taxes,
insurance, mortgage insurance, and home owner association dues, if
applicable.
Mortgage Insurance Premium: The consideration paid by a mortgagor for
mortgage insurance either to the FHA or to a private mortgage insurance
company.
Negative Amortization: The result of artificiality low monthly payments
which do not cover all the interest due the lender. The deferred interest
is
added to the loan balance, which may be other than the original amount of
the loan. This is typical of a graduated payment mortgage and some ARM's,
and may be known as Deferred Interest.
Net Income: In general, synonymous with net earnings, but considered to
be a
broader and better term: the balance remaining after deducting from gross
income all operating expenses, maintenance, taxes, and losses pertaining
to
operating properties, except interest on other financial charges on borrowed
or other capital.
Net Worth: The value of all assets, including cash less total liabilities,
often used to indicate credit worthiness and financial strength.
Planned Unit Residential Development (PURD): 1. A comprehensive development plan for
a
large land area. It usually includes residences, schools, roads,
recreational facilities, and service area, plus commercial, office, and
industrial areas; 2. A subdivision having lots of areas owned in common
and
reserved for the use of some or all of the owners of the separately owned
lots.
Real Estate Settlement Procedures Act (RESPA): Enacted by Congress to ensure
that the consumer is provided with advance disclosure of the costs involved
in the real estate settlement process. (The act provides substantial
penalties for krickbacks and other illegal practices.)
Residential Funding Corporation (RFC): RPC is a major investor in the
secondary market that provides originators with an alternative, ongoing
source of financing for conventional home mortgages. RFC is a subsidiary
of
Salomon Bros. and uses MGIC as the delegated underwriter and pool insurer.
Sales Comparison Analysts Approach: SEE MARKET DATA APPROACH.
Secondary Income: Earnings other than the base pay of primary employment;
may include, but is not limited to, bonuses, overtime, part-time income,
net
rental income, alimony, child support, and separate maintenance.
Secondary Market: Network of mortgage originators who lend money to home
buyers and investors who are prepared to buy these mortgage loans.
Stable Income: Is that income which will be used in determining the ability
of the borrower to repay the loan, including primary and acceptable
secondary income.
Total Monthly Debt Payments: The sum of monthly housing expense and
installment debts which have ten or more monthly payments, including
alimony, child support and separate maintenance.
Truth-In-Lending (TIL): A federal law also known as a Regulation Z, which
was enacted to provide consumers with standardized credit terms allowing
a
means of comparing various offerings from lenders.
Underwriting: The analysis of risk and the marking of it to an appropriate
rate and term.
Veterans Administration: An independent agency of the federal government
created in 1930, designed to encourage lenders to offer long-term, low
payment mortgages to eligible veterans by guaranteeing the lender against
loss.
If you have any questions on this information, or would like further information,
you may email me at:Pat Mount
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