Glossary Of Real Estate & Investing Terms
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# - Glossary
1031 Exchange
The IRS code's Section 1031 makes it possible for a real estate investor to defer payment of capital gains taxes on an investment property upon its sale, as long as another "like-kind" property is bought with the profit from the sale of the investment property.
72 Hour Clause
The 72-hour clause is a seller contingency that allows the seller to accept a buyer's contingent offer to purchase his/her property, while allowing the seller to continue to market the property. If the seller now receives another (better) offer to purchase the same property, he/she can also accept this offer, as a backup offer. The seller can then activate the escape clause by notifying the original buyer about the backup offer. The first buyer now has a specified period of time (usually 72 hours, but it can be more) to fulfill all the buyer contingencies in the contract of sale, or cancel the contract and lose the property. If the buyer cannot fulfill the contingencies in time, the original contract will cancel and the backup offer will move into the first position.
80-10-10 Loan
A type of blended mortgage loan which avoids private mortgage insurance (PMI). It consists of an 80% - 30-year first lien at market rates, a 10% - 15-year second lien at a slightly higher interest rate, and a 10% down payment. Instead of having to come up with a 20% down payment, a buyer is able to avoid PMI with only 10% down. While the interest rate on the second note is a bit higher, the total monthly payment is usually lower than a 90% mortgage with PMI. In addition, the extra interest paid for the second lien is tax-deductible, whereas PMI is not. It is also possible to payoff just the second lien, thereby lowering the future monthly payments. Some lenders also offer 75-15-10 and 80-15-5 programs. This type of mortgage also gives the consumer the option of having a non-escrowing loan without a 20% downpayment.
A - Glossary
Adjustable-Rate Mortgage (ARM)
A loan on which the monthly payments will increase or decrease over time, based on changes in the ARM’s interest rate index. ARM payments typically are adjusted every six months or once a year. Common indices to which ARMs are tied include the 11th District Cost of Funds, one-year T-note, and six-month T-bill.
Adjusted Basis
The cost of a property plus the value of any capital expenditure for improvements to the property minus any depreciation taken.
Affordability Analysis
An analysis of a buyer’s ability to afford the purchase of a home. Reviews income, liabilities, and available funds. Considers the type of mortgage you plan to use, the area where you want to purchase a home, and the probable closing costs.
After Repair Value (ARV)
This estimates the future value of the property after renovations and any repairs that are made to the property. This is not the value of the property at purchase but following the improvements that are made to the property and is an estimation, not a guarantee, based on what comparable properties have recently sold for.
Amortization
The gradual repayment of a mortgage through monthly (e.g. installment) payments. In the early years of a mortgage, most of the monthly payment goes toward interest. Later in the mortgage, more of the payment goes toward reducing the loan’s principal balance.
Annual Percentage Rate (APR)
The annual cost of a mortgage, including interest, loan fees, and other costs, stated as a percentage of the loan amount.
Appraisal/Appraised Value
An opinion of the market value of a home expressed by an unbiased professional real estate appraiser
Appreciation
Appreciation is the increase in a home’s value over time. A home’s appreciation can be calculated based on the fair market value of comparable homes in the neighborhood of the property in question. Appreciation of a home can come through the natural appreciation of the value of the home over time or can be forced into the home through upgrades, remodels, or renovations that add value to the home.
Arbitration
The term used to describe a form of dispute resolution that occurs outside of the court system, usually by private agreement between parties. Basically, arbitration is a dispute resolution system where the parties submit arguments and evidence to a neutral person, known as the arbitrator, who then renders a decision, called an award, based upon the evidence and arguments presented.
Assessed Value
The assessed value is different from the appraised value in that it is the dollar value assigned to the property to measure applicable taxes. This determines the value of a property for tax purposes and takes comparable property sales and inspections of the property into consideration.
B - Glossary
Balloon Mortgage
A loan that is amortized for a longer period than the term of the loan. Usually, this refers to a 30-year amortization and a five-year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due.
Bridge Loan
A second trust for which the borrower’s present home is collateral, allowing the proceeds to be used to close on a new house before the present home is sold. Also known as a “swing loan.”
BRRRR
The BRRRR strategy was coined by Brandon Turner and stands for Buy, Rehab, Rent, Refinance, Repeat. This strategy is where an investor buys a fixer-upper property using short-term funds (oftentimes cash, hard money, private money, or other creative means), fixes up the property, rents out the newly renovated property, and seeks a new long-term loan (a refinance) to pay off the old short-term loan. This refinance will free up the short-term capital that was used, allowing the investor to repeat the process again and again. For more information, check out the book “Buy, Rehab, Rent, Refinance, Repeat” by David Greene.
Buy and Hold
The buy and hold strategy is long-term investing, where a real estate investor purchases a property with the intention of holding onto and renting it for the foreseeable future.
Buy-down
When the lender and/or the home builder subsidize a mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
C - Glossary
Capital Gains Tax
When you sell an asset for more than you paid for it, you trigger what is called a capital gains tax.
Capitalization Rate aka "Cap Rate"
The capitalization rate or cap rate is used in the world of real estate investing to indicate the rate of return that an investor can expect on any given real estate investment property. This is measured by a formula based on the net income that the property is expected to produce and is calculated by dividing net operating income by the property asset value and is expressed as a percentage. This calculation is typically used by real estate investors to understand the potential ROI on an investment property. While it is a useful calculation, this should not be the only deciding factor when considering an investment property. The capitalization rate indicates the property’s intrinsic, natural, and un-leveraged rate of return.
Caps
Provisions of an adjustable-rate mortgage limiting how much the interest rate can change at each adjustment period (e.g., every six months, once a year) or over the life of the loan (rate cap). A payment cap limits how much the payment due on the loan can increase or decrease.
Cash Flow
In real estate terms, cash flow is the byproduct of owning a rental property and leasing it to tenants for a monthly rental income. To elaborate on this, real estate investors look for rental properties reaping positive cash flow returns, or, in other words, they invest in positive cash flow properties.
Cash On Cash Return (COCR or CRR)
A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.
Cash-Out Refinance
A cash-out refinance will replace a person’s existing mortgage with a new home loan for more than is currently owed on a property. The difference is refunded to the property owner in cash and can be spent on home improvements, debt consolidation, or any other financial needs. In order to use a cash-out refinance, a property owner would need to have built up equity in the property.
D - Glossary
Deed
A deed is a legal document that passes and confirms an interest, right, or property and is signed, attested, delivered, and sealed. It is commonly associated with transferring the title of a property from the seller to the buyer.
Deed Of Trust (DOT)
A Deed of Trust is a type of secured real-estate transaction that some states use instead of mortgages. A deed of trust involves three parties: a lender, a borrower, and a trustee. The lender gives the borrower money. In exchange, the borrower gives the lender one or more promissory notes.
Deferred Interest
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.
Debt-To-Income (DTI) Ratio
The ratio of monthly debt payments to monthly gross income. Lenders use a housing DTI ratio (house payment divided by monthly income) and a total DTI ratio (total debt payments including the house payment divided by monthly income) to determine whether a borrower’s income qualifies him or her for a mortgage.
Dual Agency
A Dual agency is when a real estate agent represents both the buyer and the seller in a single transaction.
Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
E - Glossary
Earnest Money
The deposit is given by a buyer to a seller to show that the buyer is serious about purchasing the home. Earnest money usually is refundable to homebuyers in the event a contingency of the sales contract cannot be met.
Effective Gross Income
Effective gross income, or EGI, can be calculated by taking the potential gross income from an investment property, adding other forms of income generated by that property, and subtracting vacancy and collection losses.
Entitlement
The Veterans Affairs home loan benefit (i.e., entitlement for a VA-guaranteed home loan). This is also known as eligibility.
Equity
Equity is the difference between the market value of a property and the amount of money that is still owed on the loan. Equity can accrue naturally through the market or can be forced into the home based on improvements made by the owner.
Escrow
The holding of documents and money by a neutral third party prior to closing.
Escrow Agent
An escrow agent is a person that holds property in trust for third parties while a transaction is finalized on the property in question.
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment
The part of a mortgager’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
Eviction
The legal method for removing a tenant from a rental property. Eviction typically takes place after the tenant fails to make their monthly rent payments on time.
F - Glossary
Fair Market Rent (FMR)
Fair market rent (FMR) is the monthly rent a particular property type is likely to receive.
Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development whose main activity is insuring residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (Fannie Mae)
A privately owned corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by Federal Housing Administration or guaranteed by Veterans Affairs. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Fannie Mae and Freddie Mac are the key secondary mortgage-market agencies.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately-priced homes almost anywhere in the country.
FHA Mortgage Insurance
Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the downpayment, the more years the fee must be paid.
Firm Commitment
A promise by Federal Housing Administration to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
Fix and Flip
This term is coined for properties that need a lot of rehabilitation to make them appealing to buyers. Real estate investors will buy the property, renovate it, and resell the property for a profit.
Fixed-Rate Mortgage
This is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan.
Federal Home Loan Mortgage Corporation (Freddie Mac)
A quasi-governmental, privately owned agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Fannie Mae and Freddie Mac are the key secondary mortgage-market agencies.
Forced Equity
Forced equity is equity that is instantly put into the home by making improvements to it. By improving the home, you not only increase the home's market value but also increase the market rent, which permits you to make more money each month and pay off your property faster. This is the best way to build equity in a home versus waiting for the home’s market value to increase naturally.
Foreclosure
Foreclosure is the legal process in which a lender or bank takes control of a property, evicts the homeowner, and sells the home after a homeowner is unable to make full principal and interest payments on his or her mortgage, as decided upon in the mortgage contract.
Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
G - Glossary
Gentrification
Gentrification is a process where a neighborhood undergoes urban development, involving an influx of higher-income residents to an otherwise abandoned or rundown area. Gentrification is a controversial political and social topic.
Graduated-Payment Mortgage (GPM)
A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
H - Glossary
Hard Money Lender (HML)
A hard money lender is a private lender that uses property collateral instead of credit scores in order to qualify to lend a buyer.
Hard Money Loan
Hard money is a way to borrow without using traditional mortgage lenders. Loans come from individuals or investors who lend money based (for the most part) on the property you’re using as collateral and not based on credit scores. When loans need to happen quickly, or when traditional lenders will not approve a loan, hard money may be the only option.
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm, and the like.
HELOC
A home equity line of credit (HELOC) is when a property owner borrows money against the equity that has been built up in the said property.
Home Equity
This is the current market value of your home, minus what a borrower still owes on a mortgage.
Home Inspection
A home inspection is something that a home buyer will pay to have conducted during the escrow period. A home inspector will come to the property and look at different aspects of the home that may deter a buyer from wanting to follow through with the purchase.
Homeowners Association (HOA)
The primary purpose of a homeowners association is to manage a large property’s or neighborhood's common areas, such as roads, parks, and pools. Homeowners are obligated to pay dues, which can be anything from $100 to $10,000 a year, depending on the building/neighborhood and its amenities. This is an added monthly expense on top of a mortgage payment and should be considered as such when home buying.
Homeowner’s Warranty
A policy that covers certain repairs (e.g. plumbing or heating) of a newly purchased home for a certain period of time.
House Hacking
House hacking is a strategy in which the property owner lives within the investment property and lives for free (or almost free) based on other tenants paying rent that covers the whole mortgage. This strategy is typically done with a multifamily unit but can also be done in single-family homes by renting out extra rooms.
Housing Expenses-to-Income Ratio
The ratio expressed as a percentage, which results when a borrower’s housing expenses are divided by his or her gross monthly income.
HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. A separate number within a standardized numbering system represents each item on the statement. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.
I - Glossary
Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable-rate mortgage and that earned by other investments (such as one-, three- and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Indexed rate
The sum of the published index plus the margin. For example, if the index were 9 percent and the margin 2.75 percent, the indexed rate would be 11.75 percent. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.
Interest Only Loan (I/O)
An interest-only loan is a loan in which the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the interest-only period.
Interest Rate Ceiling
For an adjustable-rate mortgage, the maximum interest rate as specified in the mortgage note.
Interest Rate Floor
For an adjustable-rate mortgage, the minimum interest rate as specified in the mortgage note.
Interim Financing
A construction loan made during the completion of a building or a project. A permanent loan usually replaces this loan after completion.
Internal Rate Of Return (IRR)
The internal rate of return is a measure of an investment’s rate of return.
J - Glossary
Joint Venture (JV)
A commercial enterprise when undertaken jointly by two or more parties that otherwise retain their distinct identities.
L - Glossary
Landlord
A person or company who owns property that they allow other people to live in, in exchange for monthly rent.
Lease
The legally binding contract that governs the circumstances in which a landlord will rent their property to a tenant.
Lease Option (L/O)
A lease option is an agreement that gives a renter a choice to purchase the rented property during or at the end of the rental period.
Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes, and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.
Lender
Lenders are people or companies that allow you to borrow money with the promise that it will be repaid. Repayment includes principal and interest and may include monthly payments or a lump sum payment.
Leverage
Leverage is the use of various financial instruments or borrowed capital—in other words, debt—to increase the potential return of an investment. It is commonly used when talking about the real estate market.
Lien
A legal interest in a property, which must be paid in full before the property can be sold. If there is a lien on a property, this is typically identified in the escrow process and will break the contract.
Lien Waiver
A lien waiver is a document from a contractor, subcontractor, materials supplier, equipment lessor or other party to the construction project stating they have received payment and waive any future lien rights to the property for the amount paid.
Lifetime Payment Cap
For an adjustable-rate mortgage, a limit on the amount that payments can increase or decrease over the life of the mortgage.
Lifetime Rate Cap
For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease over the life of the loan.
Line Of Credit (LOC)
A line of credit is a preset amount of money that a bank or credit union has agreed to lend you. You can draw from the line of credit when you need it, up to the maximum amount. You'll pay interest on the amount you borrow.
List Price
The price at which a property is listed by the seller.
Loan-to-Value (LTV) Ratio
The ratio of the amount of money owed on a home to the home’s value. The LTV ratio for a $100,000 home financed with a $90,000 mortgage would be 90 percent, for example.
M - Glossary
Margin
The amount a lender adds to the index on an adjustable-rate mortgage to establish the adjusted interest rate.
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Mediation
A process used to resolve disputes. In mediation, the parties to the dispute are assisted by a neutral third person called a mediator. The mediator is not empowered to impose a settlement or decision on the parties; rather, the mediator facilitates discussions and negotiation between the parties with the goal of assisting the parties in reaching a mutually acceptable settlement of their dispute.
Mortgage Broker
An individual who assists with arranging funding or negotiating contracts for a client but who does not loan the money himself or herself. Brokers usually charge a fee or receive a commission for their services.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent.
Mortgage Life Insurance
A type of term life insurance specifying that in the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
Mortgage Interest Deduction
The ability of mortgage borrowers to deduct the interest paid on a home loan for purposes of federal and state income taxes.
Multi-Family
A building or structure that is designed to house several different families in separate housing units.
N - Glossary
Negative Amortization
Occurs when monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
Net Operating Income (NOI)
Net operating income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property, minus all reasonably necessary operating expenses.
Net Worth
Financial resources or other wealth belonging to a particular person, especially when used for investment purposes.
Note
Mortgage notes are a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise.
O - Glossary
One-year Adjustable
Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin chosen by the lender.
Origination Fee
A fee charged by a lender for making a mortgage.
P - Glossary
PITI
Principal, interest, taxes, and insurance – the primary components of a monthly mortgage payment.
Pledged-account Mortgage (PAM)
Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
Points
One point equals 1 percent of the mortgage amount. Points are charged by lenders to increase the lender’s return on the mortgage. Typically, lenders may charge anywhere from zero to two points. Loan points are tax-deductible.
Pre-Approval Letter
A pre-approval letter is a document that states the loan amount a lender is willing to extend to a borrower. It is not a guarantee to lend, but it carries significant weight, especially to other parties in a real estate transaction, such as agents and sellers.
Prepayment Penalty
Money charged for early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Primary Mortgage Market
Lenders, such as savings-and-loan associations, commercial banks, and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets.
Private Mortgage Insurance (PMI)
Insurance issued by private insurers protecting lenders against a loss if a borrower defaults on a mortgage with a low down payment (e.g., less than 20 percent).
Probate
Probate is the legal process through which a deceased person's estate is properly distributed to heirs and designated beneficiaries and any debt owed to creditors is paid off.
Proof Of Funds
Proof of funds is a document that stipulates that a buyer is financially capable of securing a mortgage or has the funds necessary to make an all-cash purchase in a real estate transaction.
Property Manager
A property manager is an individual or a company that is hired by a property owner in order to run the rental property. Typically property owners will hire a property management company to run it day-to-day because they are unwilling or don’t have the time to do so.
Q - Glossary
Qualifying Ratios
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
R - Glossary
Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
Real Estate Owned (REO)
Real estate owned (REO) is the name given to foreclosed-upon real estate. This happens when a borrower fails to make monthly mortgage payments and therefore defaults on the loan. In this case, the property goes back to the bank or lender for sale. It is typically sold at a discounted price.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs. RESPA is a federal law that, among other things, allows consumers to review information on known or estimated settlement cost after application and prior to or at settlement. The law requires lenders to furnish the information after application only.
Recission
The cancellation of a contract by putting all parties back to the position before they entered the contract. In some mortgage financing situations involving equity in the home as security, the law gives the homeowner three days to cancel a contract.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
Refinance Rate
One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically.
Repair Costs
Repair costs within real estate investing are typically applied to fix and flips or even BRRR properties where there is repairs and renovations to be done. Repair costs should be properly calculated before buying any investment property in order to accurately assess a deal.
Return On Investment (ROI)
Return on investment (ROI) measures how much money or net profit is made on an investment, displayed as a percentage of the cost of that investment.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as collateral for and repayment of the loan.
S - Glossary
Sales and Purchase Agreement
A sales and purchase agreement (SPA) is a legal contract that obligates a buyer to buy and a seller to sell a product or service. SPAs are found in all types of businesses but are most often associated with real estate deals as a way of finalizing the interests of both parties before closing the deal.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
Seller-Financed Sale
Seller financing is a loan provided by the seller of a property or business to the purchaser.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.
Servicer
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.
Short Sale
A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property.
Standard Payment Calculation
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.
Step-Rate Mortgage
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.
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.
Syndicate
A syndicate is a temporary, professional financial services alliance formed for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually.
T - Glossary
Tax Lien
A tax lien is the government's claim on your property and is generally placed when a taxpayer, such as a business or individual, fails to pay taxes owed.
Third-Party Origination
When 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.
Title
A legal concept relating to ownership of property.
Title Insurance
Insurance to protect the buyer and lender against losses arising from disputes over the ownership of a property.
Title Search
An examination of public records to determine the legal ownership of property. Usually, the records are recorded with the County Recorders office. The search is usually performed by a title company using computerized records.
Turnkey
A turnkey property is a fully renovated home or apartment building that an investor can purchase and immediately rent out.
U - Glossary
Under Contract
In real estate, being “under contract” means that a buyer’s offer has been accepted by the seller.
Underwriting
The process of evaluating a loan application to determine if it meets the lender’s standards.
Usury
Interest charged in excess of the legal rate established by law.
V - Glossary
Vacancy Rate
The vacancy rate is the ratio of rental units not rented versus the total number in the building.
VA Loan
A long-term, low- or a no-downpayment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
VA Mortgage Funding Fee
A premium of up to 1.5 percent (depending on the size of the downpayment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.
Verification of Deposit (VOD)
A document signed by the borrower’s financial institution verifying the status and balance of that person’s financial accounts.
W - Glossary
Warehouse Fee
Many mortgage firms must borrow funds on a short-term basis in order to originate loans that are to be sold later in the secondary mortgage market or to investors. When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss that is offset by charging a warehouse fee.
Warranty Deed
A warranty deed is one in which a property owner, when transferring the title, warrants that he or she owns the property free and clear of all liens. A warranty deed is used in most property sales. The warranty deed says that: The grantor is the rightful owner and has the right to transfer the title.
Wraparound Mortgage
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
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