A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
Among the customers of Savings and Loans (S&Ls) are individual savers and residential and commercial property mortgage borrowers. Their traditional role for savings and loans is to accept deposits and make mortgage loans, but it has expanded recently to a focus on one- to four-family residential mortgages, multifamily mortgages and commercial mortgages.
These institutions are growing bigger, and the lines between S&Ls and commercial banks are not as defined as in the past.
Deposit insurance is provided through the Savings Association Insurance Fund, a subsidiary of the Federal Deposit Insurance Corporation.
A mortgage that has a lien position subordinate to the first mortgage.
The buying and selling of existing mortgages.
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
Buyers and sellers often negotiate who will pay certain closing costs, and the results vary depending on the negotiated deal. In fact, it’s not uncommon for a sales agreement to state that either the buyer or seller pays all closing costs. The agreement that you and the seller reach must be specified in the sales contract.
Your negotiations could depend on a variety of factors, including the quality of the home, how long the home has been on the market, whether there are any other interested buyers, and how motivated the seller is to sell the home.
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
The final step before you get the keys to your home is a formal meeting called the closing. It is at this meeting in which ownership of the home is transferred from the seller to the buyer.
Also called a settlement in some parts of the country, the meeting is typically attended by the buyer(s), the seller(s), their attorneys if they have them, both real estate sales professionals, a representative of the lender, and the closing agent. The purpose is to make sure the property is physically and legally ready to be transferred to you.
Several closing costs will be paid at this meeting. These expenses are over and above the price of the property and are incurred when ownership of a property is transferred. Closing costs generally include a loan origination fee, an attorney’s fee, taxes, an amount placed in escrow, and charges for obtaining title insurance, and a survey. Closing costs vary according to the area of the country.
The HUD-1 Settlement Statement itemizes the amounts to be paid by the buyer and the seller at closing. The (blank) form is published by the U.S. Department of Housing and Urban Development (HUD).
Items on the statement include:
The form is filled out by your closing agent and must be signed by the buyer and the seller. The buyer should be allowed to review the HUD-1 Settlement Statement on the business day before the closing meeting to know the closing costs in advance.
The HUD-1 Settlement Statement is also known as the “closing statement” or “settlement sheet.”
A property sale negotiated with a mortgage company in which a lender takes less than the total amount due.
One- to four-unit properties including detached homes, townhomes, condominiums, and cooperatives.
This adjustable-rate mortgage (ARM) offers a low initial interest rate for the first six months with an interest rate that adjusts every six months thereafter. The rate caps per adjustment can be 1 percent or 2 percent; the lifetime adjustment caps can be 4 percent, 5 percent, or 6 percent. This type of mortgage may be right for you if you anticipate a rapid increase in income over the first few years of your mortgage. That’s because it lets you maximize your purchasing power immediately. It may also be the right mortgage for you if you plan to live in your home for only a few years.
The interest rate is tied to a published financial index. When comparing ARMs that have different indexes, look at how the index has performed recently. Your an approved lender can provide information on how to track a specific index and how to review a 15-year history of the index.
An account that is established for rehabilitation mortgages to hold the funds needed for the rehabilitation work so they can be disbursed from time to time as particular portions of the work are completed.
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e. seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
Designating a loan (typically at a greater than usual rate of interest) offered to a borrower who is not qualified for other loans (e.g. because of poor credit history).
An alternative financing option known as the Community Seconds® mortgage for low- and moderate-income households. An investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit corporation. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Your lender may require you to have a survey of the property performed. This process confirms that the property’s boundaries are correctly described in the purchase and sale agreement.
Also called a plot plan, the survey may show a neighbor’s fence is located on the seller’s property or more serious violations may be discovered. These violations must be addressed before the lender will proceed.
The buyer usually pays to have the survey done, but some cost savings may be found by requesting an “update” from the company that previously surveyed the property.
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
You’ll hear many terms as you work with your mortgage lender, and one of the most frequently mentioned is “PITI.” This abbreviation stands for principal, interest, taxes and insurance.
The tax and insurance components of a mortgage payment are generally held by the lender in an escrow account. The lender pays any property tax and homeowner’s insurance bills as they are due, ensuring they are paid on time.
A home buyer’s monthly mortgage payment generally covers expenses through the escrow account. If you don’t have your homeowner’s insurance and property taxes paid out of a lender escrow account, your local government and your property insurance company will send payment notices directly to you. It is your responsibility to make sure you pay these bills on time.
If you’re planning to purchase a condominium or cooperative, talk to your lender about how they view condo and co-op fees. Most likely, they are considered housing costs and not a part of PITI. However, this can vary from lender to lender.
A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.
A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenacy.
The obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement.
Homes in many parts of the country must be inspected for termites before they can be sold. You should receive a certificate from a termite inspection firm stating that the property is free of both visible termite infestation and termite damage.
The cost of the termite inspection is usually paid by the seller, and the seller’s real estate sales professional orders the inspection. You need to make sure that the original certificate is delivered to your lender at least three days before closing.
This allows the lender to review the certificate and address any potential problems.
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
Thrifts are depository institutions that primarily serve consumers and include both savings banks and savings and loan (S&L) institutions. These institutions originate and service mortgage loans. A thrift may choose to hold a loan in its own portfolio or sell the loan to an investor.
A legal document evidencing a person’s right to or ownership of a property.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
Your lender will require that you buy title insurance to ensure that you are receiving a “marketable title”. There are two types of title insurance policies:
Generally, the buyer pays the cost of both policies. Check with your insurer, because you may receive a price break if you seek a combined lender/owner policy or if you purchase a “reissue” policy from the company that previously insured the title.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
In order to make sure the borrower will receive clear title to the property, lenders require a title search. It attempts to uncover any “encumbrances” on the title and makes sure the seller is the actual owner of the property.
Encumbrances include any liens - legal claims against a property filed by creditors as a means to collect unpaid bills. Liens can also be filed by the Internal Revenue Service for nonpayment of taxes. Any such claims must be paid by the seller - this often occurs either before or at the closing.
Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.
A townhouse is similar to a condominium in that it’s a type of joint real estate where each housing unit is individually owned. However, it has two or more stories, rather than the typical one floor found in a condominium.
Townhouses are available in many shapes and sizes, and most may have yards or common spaces that can be used by the owners.
Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased.
Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.
State or local tax payable when title passes from one owner to another.
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
A fiduciary who holds or controls property for the benefit of another.
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Your lender should provide you with the Truth-in-Lending (TIL) Statement within three business days of your loan application. This document outlines the costs of your loan, and it is given to you so you can compare the costs with those of other lenders. Among the costs listed:
The lender is required to give you the final version of your TIL Statement at or prior to the closing meeting because it is possible that the APR calculated at your loan application will change at closing.
The Two-Step Mortgage is a special type of adjustable-rate mortgage (ARM) that adjusts only once. Depending on whether you select a five-year or seven-year Two-Step Mortgage, your interest rate will adjust once at the end of either five or seven years. Then, your interest rate stays the same for the remaining 25 or 23 years of your 30-year loan.
A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
A loan that is not backed by collateral.
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.
The Veterans Administration is a federal government agency authorized to guarantee loans made to eligible veterans under certain conditions. To obtain more information, you can contact the U.S. Department of Veterans Affairs.
VA loans are more flexible than those for either the Federal Housing Administration (FHA) or conventional loans.
If you are a qualified veteran, this can be an attractive mortgage program. To determine whether you are eligible, check with your nearest VA regional office.
You have several ways to get a mortgage. Your loan interview can take place, in whole or in part, over the telephone, over the Internet, or in person.
Approved lenders have a variety of options when it comes to helping you get the mortgage that’s right for you. Many lenders have Web sites that let you fill out an application online, which can save you time. Other lenders may work with you over the telephone.
Review our approved lenders list in the Find a Lender section to locate the lender that provides the services you prefer.
An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.
A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.