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Real Estate Vocab 7
ASREB Real Estate School Vocabulary for Chapter A-7
| Term | Definition |
|---|---|
| Amendatory Clause | FHA Amendatory Clause/RECert Form, the doc's verbiage amends any aspect of the sales contract that may require a buyer to forfeit earnest money, pay a penalty, or contribute additional funds to close in the event a property fails appraise at sales price. |
| Appraisal | An expert estimate of the value of something. |
| APR (Annual Percentage Rate) | Annual rate charged for borrowing or earned through an investment, and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. |
| ARM (...) | Processor is one of a family of CPUs based on the RISC (reduced instruction set computer) architecture developed by Advanced RISC Machines (ARM). ARM makes 32-bit and 64-bit RISC multi-core processors. ... An orthogonal instruction set. |
| Assumable Loan | A type of financing arrangement in which the outstanding mortgage and its terms can be transferred from the current owner to a buyer. By assuming the previous owner's remaining debt, the buyer can avoid having to obtain his or her own mortgage. |
| Assumption | Provision in mortgage contract that allows the seller of a home to pass responsibility to the buyer of the home for the existing mortgage. New homeowner assumes the existing mortgage. Typically many conditions and a fee required in an assumption clause. |
| Bait and Switch | The action (generally illegal) of advertising goods that are an apparent bargain, with the intention of substituting inferior or more expensive goods. |
| Balloon Payment | Arepayment of the outstanding principal sum made at the end of a loan period, interest only having been paid hitherto. |
| Back End Ratio | Also known as the debt-to-income ratio, is a ratio that indicates what portion of a person's monthly income goes toward paying debts. ... Lenders use this ratio in conjunction with the front-end ratio to approve mortgages. |
| Budget Loan | Debtor pays extra money for ins/RE taxes/other fees beyond the basic payments - principal and interest. Not paying these fees could bring foreclosure. The lender sets this money aside in an escrow account until the taxes or other fees need to be paid. |
| Cap | Capitalization |
| Certificate of Eligibility | Document issued by the Veterans Administration (VA) to those veterans qualified for VA guaranteed loans for homes, business, and mobile homes. A certificate of eligibility from VA is one of the most important documents required to apply for a new VA loan. |
| Certificate of Reasonable | Certificate of reasonable value. A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan. |
| Value | The regard that something is held to deserve; the importance, worth, or usefulness of something. |
| Closing Cost | Fees paid at the closing of a real estate transaction. This point in time called the closing is when the title to the property is conveyed (transferred) to the buyer. Closing costs are incurred by either the buyer or the seller. |
| Closing Disclosure | A five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). |
| Collateral | something pledged as security for repayment of a loan, to be forfeited in the event of a default. |
| Conforming, Non-conforming | A non-conforming use is a fancy legal term that simply means the existing land use somehow does not fit in with the zoning ordinance. The non-conformity may be the use of the property, such as a commercial use in a residential zoning district. |
| Consumer Financial Protection Bureau | 'Consumer Financial Protection Bureau - CFPB' The Consumer Financial Protection Bureau (CFPB) is a regulatory agency charged with overseeing financial products and services that are offered to consumers. |
| "Consumer" = "borrower" | Consumer- person who purchases goods and services for personal use. Borrower - person or organization that takes and uses something belonging to someone else with the intention of returning it. |
| Conventional Loan | A mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate. |
| Debt | something, typically money, that is owed or due. |
| Debt to Income (DTI) | One way lenders (including mortgage lenders) measure an individual's ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage. |
| Demand features | Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa. |
| Direct Features | |
| Direct Endorsement | FHA's approval of a lender to participate in the Direct Endorsement (DE) is a privilege. To obtain DE approval, a lender must demonstrate it has the qualifications, experience, and expertise to underwrite mortgage loans that satisfy FHA requirements. |
| Discount Points | A type of prepaid interest or fees mortgage borrowers can purchase that lowers the amount of interest they have to pay on subsequent payments. ... Discount points are tax deductible only for the year in which they were paid. 1% |
| Escrow Account | Refers to money held by a 3rd-party on behalf of transacting parties. ... It is best known in the US in the context of RE (specifically in mortgages where the mortgage company establishes an escrow account to pay prop tax and ins during the term). |
| FHA ( Federal Housing Administration) | Federal Housing Administration (FHA) is a United States government agency created in part by the National Housing Act of 1934. It sets standards for construction, underwriting, and insures loans made by banks and other private lenders for home building. |
| FHA 203 (k) (...) | Type of fed insured mortgage product for individuals who want to rehabilitate or repair a damaged home that will become their primary residence. Funds cover the purchase price of the house, loan provides the money needed for repairs and related expenses |
| FICO score (...) | A person's credit score calculated with software from Fair Isaac Corporation (FICO). |
| Firm Commitment | Lending institution's promise to enter into a loan agreement with a specific entity within a certain period of time 2. underwriter's agreement to assume all inventory risk and purchase all securities directly from the issuer for sale to the public |
| Fixed-rate Mortgage | often referred to as a "vanilla wafer" mortgage loan, is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". |
| Flood Insurance | A flood is defined as a rising and overflowing of a body of water onto normally dry land. Flood insurance is available to homeowners and renters, for both personal and commercial properties. |
| Floor | Retail floor planning (also referred to as floorplanning or inventory financing) is a type of short term loan used by retailers to purchase high-cost inventory such as automobiles. These loans are often secured by the inventory purchased as collateral. |
| Front End Ratio | Front-end is a ratio that indicates which portion of an individual's income is used to make mortgage payments. Ratio is calculated as an individual's mthly housing expenses divided by his MGI, and is used in conjunction with the back-end ratio. |
| Funding Fee | to most veterans who obtain a VA mortgage loan to help sustain the VA home loan program. Only veterans receiving VA disability are exempt from paying this fee. The VA Funding Fee is a percentage of the principal loan amount and is due at closing. |
| HOA (Home Owners Association) | An organization in a subdivision, planned community or condominium that makes and enforces rules for the properties within its jurisdiction. The purchase of the property automatically makes the homeowner a member of the HOA and dues are required. |
| (HOA) Dues, Fees, Assessments | have the power to place a lien on the homeowner's property if he or she doesn't pay the monthly dues and/or any special assessments |
| (HOA) Transfer | Homeowners associations often charge a small fee when homes are sold within the community in order to pay for services and capital improvements. According to the Community Associations Institute, 72% of HOAs impose transfer fees when homes are sold |
| (HOA) Disclosure | HOA disclosure documents must provide: The disclosure within 10 days of the mailing or delivery of the request for the documents A written or electronic estimate of the fees (from a specific form) to be charged for providing the requested documents |
| Home Inspection | A Home inspection is a non-invasive visual examination of a residential dwelling, performed for a fee, which is designed to identify observed material defects within specific components of said dwelling. dwelling. |
| Homeowner's Insurance | is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. |
| Home Warranty | A home warranty is a residential service contract undertaken by a home owner that covers the cost of maintaining household systems or appliances |
| Hybrid | a thing made by combining two different elements; a mixture. |
| Index | An interest rate charged on loans to borrowers that is calculated by taking the sum of a benchmark index interest rate and a specified margin. The indexed rate is used to calculate the interest rate on an adjustable-rate mortgage (ARM). |
| Intent Proceed | Notice of Intent to Proceed with Loan Application (NIPLA) is a letter signed by the loan applicants to inform the lender of their intention to proceed with the loan application and their acceptance of the terms and fees listed in the Good Faith Estimate |
| Interest Rate | The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. |
| (Interest Rate) Floating | A floating interest rate, also known as a variable or adjustable rate, refers to any type of debt instrument, such as a loan, bond, mortgage, or credit, that does not have a fixed rate of interest over the life of the instrument. |
| (Interest Rate) Locked | An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate. |
| Impound Account | An impound account (escrow account, depending on where you live) is simply an account maintained by the mortgage company to collect insurance and tax payments that are necessary for you to keep your home, but are not technically part of the mortgage |
| Lender Credits | Benefit is borrower can secure the lowest possible interest rate, but means they generally pay out-of-pocket to obtain it. They can still offset some (or all) of their closing costs with a lender credit, but that too will come with a higher interest rate. |
| Loan Application | Document that provides the essential financial and other information about the borrower on which the lender bases the decision to lend. loan application entails neither a pledge by the applicant nor a commitment by the lender. Also credit application. |
| Loan Costs | Fee charged to process an app for a loan, such as a home mortgage. Loan application fees are charged to cover some of the costs involved in processing the application including credit checks, prop appraisals and basic admin costs. |
| Loan Estimates | The form provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan |
| LTV (Loan to Value) | Ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. |
| Margin | Margin is the difference between a product or service's selling price and its cost of production or to the ratio between a company's revenues and expenses. |
| MIP (Mortgage Insurance Premium) | Mortgage INS is paid if you as a borrower were to make a down payment of less than 20% on your home loan. It is paid by you, but is used to protect the lender from losses if you were to default on the loan. On FHA, borrowers must pay a MIP |
| (NegAm) Negative Amortization | An increase in the principal balance of a loan caused by making payments that fail to cover the interest due. The remaining amount of interest owed is added to the loan's principal, which ultimately causes the borrower to owe more money. |
| Origination Costs | Origination fee is an upfront fee charged by a lender for processing a new loan application, used as compensation for putting the loan in place/These are quoted as a % of the total loan and are generally between 0.5 and 1% on mortgage loans in the US |
| PI (Principal Interest) | Principal is the money used to pay down the balance of the loan; interest is the charge paid to the lender for the privilege of borrowing the money; taxes refer to the property taxes paid as a homeowner; and insurance refers to both prop insurance and PMI |
| PITI ( Principal Interest Taxes Insurance) | Principal, Interest, Taxes, Insurance (PITI) ... Property Tax. The tax paid by homeowners to the government determined by an assessment. Homeowners pay this tax annually, semi-annually or as part of a monthly mortgage payment. |
| PMI (Prime Mortgage Insurance) | (PMI) is a special type of insurance policy, provided by private insurers, to protect a lender against loss if a borrower defaults |
| Points | A point is a fee equal to 1% of the loan amount. A 30-year, $150,000 mortgage might have a rate of 7% but come with a charge of 1 point, or $1,500. A lender can charge 1, 2 or more points. |
| Pre-paids | A prepaid expense is a type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received in the near future. |
| Prepayment Penalty | A prepayment penalty is a clause in a mortgage contract stating that a penalty will be assessed if the mortgage is prepaid within a certain time. Penalty is based on a % of the remaining mortgage balance or a certain number of months' worth of interest. |
| Pre-approve | Usually pre-qualification. Although, to typical consumer, "pre-approved" means "already passed the approval process/therefore are guaranteed to be immediately granted the loan" the literal meaning is different. Literal meaning"at a stage before approval" |
| Prequalify | Qualify in advance to take part in something. |
| Property Taxes | A property tax or millage rate is an ad valorem tax on the value of a property, usually levied on real estate. The tax is levied by the governing authority of the jurisdiction in which the property is located |
| Qualified Mortgage | A category of loans that have certain, more stable features that help make it more likely that you'll be able to afford your loan. Means lender met certain requirements and it's assumed that the lender followed the ability-to-repay rule. |
| Reinstatement of VA Benefits | A VA restoration of entitlement allows borrowers who have previously utilized their VA loan entitlement to purchase another home with the VA’s guaranty again. |
| REO Properties (...) | Real estate owned or REO is a term used in the US to describe a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction. |
| RESPA (Real Estate Settlement Procedures Act ) | First passed in 1974, (RESPA) is a federal statute enacted by the U.S. (HUD) to govern the RE settlement process by mandating all parties fully inform borrowers about all closing costs, lender servicing and escrow account practices, business relationships |
| Security Interest | Property interest created by agreement or by operation of law over assets to secure - performance of an obligation, usually the payment of a debt. beneficiary of the security interest gets certain preferential rights in the disposition of secured assets. |
| Subprime | Referring to credit or loan arrangements for borrowers with a poor credit history, typically having unfavorable conditions such as high interest rates. |
| Title 1 | |
| Title 2 | |
| Title 3 | |
| Title Insurance | Insurance policy that covers the loss of ownership interest in a property due to legal defects and is required if the property is under mortgage. Most common type of title INS is a lender's title insurance/paid for by the borrower but protects lender. |
| (Title Insurance) Lenders | Insurance policy that covers the loss of ownership interest in a property due to legal defects and is required if the property is under mortgage. Most common type of title INS is a lender's title insurance/paid for by the borrower but protects lender. |
| (Title Insurance) Owners | Insurance policy that covers the loss of ownership interest in a property due to legal defects and is required if the property is under mortgage. Most common type of title INS is a lender's title insurance/paid for by the borrower but protects lender. |
| Truth in Lending (Reg Z) | made in 1968 is United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed. |
| UFMIP (Up Front Mortgage Insurance Premium) | Anyone who takes out an FHA loan is required to pay the premium. This lump sum is allowed to be financed into the loan, so you don't have to actually write a check for it at closing – but make no mistake, you are still paying |
| USDA (United States Department of Agriculture) | A department of the United States government that manages various programs related to food, agriculture, natural resources, rural development and nutrition |
| Underwriting | Mortgage underwriting process provides for your entry into the real estate market, while also allowing the bank to turn a reasonable profit. |
| (Underwriting) Four C's | Capacity to pay back the loan, Capital, Collateral, Credit |
| (Underwriting) Capacity to pay back the loan | Lenders look at your income, employment history, savings, and monthly debt payments, such as credit card charges and other financial obligations, to make sure that you have the means to take on a mortgage comfortably. |
| (Underwriting) Capital | Lenders consider your readily available money and savings plus investments, properties, and other assets that you could sell fairly quickly for cash. |
| (Underwriting) Collateral | Lenders take into account the value of the property and other possessions that you're pledging as security against the loan. |
| (Underwriting) Credit | Lenders check your credit score and history to assess your record of paying bills and other debts on time. |
| U.S. Department of Veterans | 2nd-largest cabinet department. VA coordinates the distribution of benefits for veterans of the American armed forces and their dependents. Benefits include compensation for disabilities, the management of VA' hospitals, and various insurance programs. |
| Affairs | Business and financial dealings. |
| Zero Point Loan | An option which allows the borrower to not pay the points associated with the loan origination fee. This savings is offset by a slightly higher loan interest rate. |
| Index/Margin | A fixed percentage rate that is added to an index value to determine the fully indexed interest rate of an adjustable rate mortgage (ARM). The margin is constant throughout the life of the mortgage, while the index value is variable. |
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