Important terms

15 year Fixed mortgage
A mortgage that maintains the same interest rate for the entire 15 year term of the loan.

15 year jumbo mortgage
A mortgage which exceeds the limits as set for the by Freddie Mac and Fannie Mae. The limit changes annually. These mortgages generally have higher interest rates than conventional mortgages.

20 year fixed mortgage

A mortgage that maintains the same interest rate for the entire 20 year term of the loan.

30 year fixed mortgage

A mortgage that maintains the same interest rate for the entire 30 year term of the loan.

401(k)/403(b) loan

401(k) and 403(b) are both plans that allow employees to invest and save for their retirement. The employees can authorize their employers to deduct a certain amount of the money from their salary before taxes to invest in these plans. They also permit the taking of loans against funds accrued in these plans. Loans against the 401(k) are often used as down payment for these loans. The 403(b) is also known as tax sheltered annuity (TSA) plan and is provided for employees of public schools, certain tax-exempt organizations and other certain ministries whereas the 410(k) is mainly for private organizations.
See further Reverse Mortgage

403(b) plan

A plan similar to a 401(k), but this plan is designed for public employees and nonprofit organizations.

529 plan

A savings type plan that allows families to set aside funds for their children's education with tax benefits. They are set up as prepaid tuition arrangements or simpler savings accounts. Also called Qualified Tuition Plans.

72 hours clause

This clause is designed to protect the seller from losing valuable marketing time during the real estate negotiation period. If a buyer has a house on the market, the seller will accept that buyer's offer but reserves the right to accept a better offer should one be presented. If this is the case, the seller gives the first buyer 72 hours to commit to the purchase or allow the second offer to prevail.

80-10-10 loan

A popular loan which allows you to finance 90 percent of the mortgage while avoiding mortgage insurance. The buyer puts down 10 percent, then takes out two mortgages, one for 80 percent and a second for 10 percent. In general, this situation keeps your monthly payments low which makes it easier to qualify for this mortgage.

A-Credit

The best credit rating that you can have. A FICO score above 720 will get you the best offer the lender can offer and the best interest rates. When applying for a mortgage loan, you will want your credit score to be as high as you can make it. Start working on this immediately.

Abandonment

Abandonment happens when the person with a right or interest in a property gives up their interest. Once property has been "abandoned," it is no longer the property of the estate. This can happen either by physically abandoning the property or by demonstrating the intention of giving up the right or interest.

Ability to Pay

A principle of taxation. Individuals who earn more money will pay more income tax not because they utilize more of the government services but because they have the ability to pay more.

Abstract of title

A summary listing of all the transactions that pertain to the title on a specific piece of land. An abstract of title covers the time from when the property was first sold to the present. This information can be used to create a title binder.

Accelerated depreciation  

A bookkeeping method primarily for tax purposes that shows how the property is losing value. Depreciation is the reduction of the properties value over passing time. If the property is losing its value quickly, the value can be accelerated so that the majority of its value is lost in the first few years but slows down over the later years in ownership.

 Ability to Pay

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due on Sale Clause.

 Balloon Payment

A balloon payment is generally found on loans of a short duration in which the entire balance of the loan is to be repaid at once. The mortgage is usually amortized over a period of 25 to 30 years to lower the monthly payment to an extent, but the balance of the loan is due in 5, 10, or 15 years, depending on the agreed terms.

 Closing Costs

Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney's fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

 Collections

The efforts a lender takes to collect past/over- due payments.

 Deed-in-Lieu

The transfer of title from a borrower to the lender to fulfill the mortgage debt and avoid foreclosure (also referred to occasionally as a "voluntary conveyance."

 Escrow

The holding of documents and/or money by a neutral 3^rd party prior to closing; also, an account held by the lender into which a home owner pays money for taxes and insurance. An ‘escrow account’ is an account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

 Forbearance

When a lender postpones legal action when a borrower is delinquent. This is generally granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up-to-date.

 Foreclosure

The legal process by which a property which is mortgaged as security for a loan may be sold and the proceeds of the sale are applied to the mortgage debt. This occurs when the loan becomes delinquent or when the borrower is in default for a reason other than the inability to make mortgage payments on time.

 Good Faith Estimate

A written estimate of closing costs which a lender must provide you within 3 days of your application submission.

 Loan to valuation ratio (LVR)

The ratio of the amount lent, to the valuation of the security (usually the property).

A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself. Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

 Mortgage Insurance

Insurance which protects lenders against losses caused by a borrower's default on a mortgage loan. Mortgage insurance (or MI) is usually required if the down payment is less than 20 percent of the purchase price.

 Negative gearing

Where the return on an investment is insufficient to meet the interest costs of the loan used to fund the investment.

 Portability

A feature that enables a home loan to be transferred from one property to another without refinancing.

 Secondary Mortgage Market

The market in which mortgages and trust deeds are bought and sold. This essentially allows mortgages to be bought and sold at discounts, at full value, or above the value, by banks, government agencies such as Fannie Mae and Freddie Mac, insurance companies, and other investors.

 Short Sale

The acceptance of less money than that which is owed on a mortgage in order to facilitate the purchase of the property. This is usually done to prevent the property from going into foreclosure.

 Sub-Prime Loans

Loans that are made to individuals who have less than perfect credit. There are different variations of sub-prime loans that usually coincide with the severity of a borrower’s credit. The worse a borrower’s credit, the higher the interest rates that are charged.

 Title

Legal document establishing the right of ownership.

 Wrap-Around Mortgage

A mortgage in which the buyer of a property makes monthly payments to the former owner and then the former owner makes the mortgage payments to the original mortgage holder.