Definitions P-Z
PITI
See principal, interest, taxes, and insurance (PITI).
point
A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.
Alegal document that authorizes another person to act on one’s behalf. Apower of attorney can grant complete authority or can be limited tocertain acts and/or certain periods of time.
Adetailed evaluation that mortgage brokers use to determine how muchmoney they may be able to borrow. The preapproval process reviews theborrowers financial statements, credit and debts. A preapproval letterstrengthens the borrowers position when presenting an offer topurchase, because it shows the seller the borrowers seriousness andcreditworthiness.
prepayment
Anyamount paid to reduce the principal balance of a loan before the duedate. Payment in full on a mortgage that may result from a sale of theproperty, the owner's decision to pay off the loan in full, or aforeclosure. In each case, prepayment means payment occurs before theloan has been fully amortized.
prepayment penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
pre-qualification
Theprocess of determining how much money a prospective home buyer will beeligible to borrow before he or she applies for a loan.
prime rate
Theinterest rate that banks charge to their preferred customers. Changesin the prime rate influence changes in other rates, including mortgageinterest rates.
principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
principal balance
Theoutstanding balance of principal on a mortgage. The principal balancedoes not include interest or any other charges. See remaining balance.
principal, interest, taxes, and insurance (PITI)
Thefour components of a monthly mortgage payment. Principal refers to thepart of the monthly payment that reduces the remaining balance of themortgage. Interest is the fee charged for borrowing money. Taxes andinsurance refer to the amounts that are paid into an escrow accounteach month for property taxes and mortgage and hazard insurance.
private mortgage insurance (MI)
Mortgageinsurance that is provided by a private mortgage insurance company toprotect lenders against loss if a borrower defaults. Most lendersgenerally require MI for a loan with a loan-to-value (LTV) percentagein excess of 80 percent.
A written promise to repay a specified amount over a specified period of time.
Yearly taxes (paid by the owner) assessed on a home. Property tax annually averages 1 to 2 percent of the home's value.
qualifying ratios
Calculationsthat are used in determining whether a borrower can qualify for amortgage. They consist of two separate calculations: a housing expenseas a percent of income ratio and total debt obligations as a percent ofincome ratio.
quitclaim deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
radon
A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
REALTOR®
Areal estate broker or an associate who holds active membership in alocal real estate board that is affiliated with the NATIONALASSOCIATION OF REALTORS®.
Thenoting in the registrar’s office of the details of a properly executedlegal document, such as a deed, a mortgage note, a satisfaction ofmortgage, or an extension of mortgage, thereby making it a part of thepublic record.
Taking out a new mortgage loan to pay off an existing mortgage.
rehabilitation mortgage
A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.
remaining balance
The amount of principal that has not yet been repaid. See principal balance.
rent with option to buy
See lease-purchase mortgage loan.
repayment plan
Anarrangement made to repay delinquent installments or advances. Lenders'formal repayment plans are called "relief provisions."
right of first refusal
Aprovision in an agreement that requires the owner of a property to giveanother party the first opportunity to purchase or lease the propertybefore he or she offers it for sale or lease to others.
right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
sale-leaseback
Atechnique in which a seller deeds property to a buyer for aconsideration, and the buyer simultaneously leases the property back tothe seller.
second mortgage
A mortgage that has a lien position subordinate to the first mortgage.
secured loan
A loan that is backed by collateral.
security
The property that will be pledged as collateral for a loan.
seller take-back
Anagreement in which the owner of a property provides financing, often incombination with an assumable mortgage. See owner financing.
subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
subordinate financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
subsidized second mortgage
Analternative financing option known as the Community Seconds® mortgagefor low- and moderate-income households. An investor purchases a firstmortgage that has a subsidized second mortgage behind it. The secondmortgage may be issued by a state, county, or local housing agency,foundation, or nonprofit corporation. Payment on the second mortgage isoften deferred and carries a very low interest rate (or no interestrate). Part of the debt may be forgiven incrementally for each year thebuyer remains in the home.
Adrawing or map showing the precise legal boundaries of a property, thelocation of improvements, easements, rights of way, encroachments, andother physical features.
Theamount saved on taxes by itemizing deductions on income tax returns.Mortgage interest and property taxes are tax deductible, and thereforegenerate a tax shield.
tenancy by the entirety
Atype of joint tenancy of property that provides right of survivorshipand is available only to a husband and wife. Contrast with tenancy incommon.
Atype of joint tenancy in a property without right of survivorship.Contrast with tenancy by the entirety and with joint tenacy.
Terms
The period of the loan expressed in years.
title
A legal document evidencing a person's right to or ownership of a property.
title company
A company that specializes in examining and insuring titles to real estate.
title insurance
Insurancethat protects the lender (lender's policy) or the buyer (owner'spolicy) against loss arising from disputes over ownership of aproperty.
title search
Acheck of the title records to ensure that the seller is the legal ownerof the property and that there are no liens or other claimsoutstanding.
transfer of ownership
Anymeans by which the ownership of a property changes hands. Lendersconsider all of the following situations to be a transfer of ownership:the purchase of a property "subject to" the mortgage, the assumption ofthe mortgage debt by the property purchaser, and any exchange ofpossession of the property under a land sales contract or any otherland trust device. In cases in which an inter vivos revocable trust isthe borrower, lenders also consider any transfer of a beneficialinterest in the trust to be a transfer of ownership.
transfer tax
State or local tax payable when title passes from one owner to another.
Treasury index
Anindex that is used to determine interest rate changes for certainadjustable-rate mortgage (ARM) plans. It is based on the results ofauctions that the U.S. Treasury holds for its Treasury bills andsecurities or is derived from the U.S. Treasury's daily yield curve,which is based on the closing market bid yields on actively tradedTreasury securities in the over-the-counter market. See adjustable-ratemortgage (ARM).
Truth-in-Lending
Afederal law that requires lenders to fully disclose, in writing, theterms and conditions of a mortgage, including the annual percentagerate (APR) and other charges.
two- to four-family property
Aproperty that consists of a structure that provides living space(dwelling units) for two to four families, although ownership of thestructure is evidenced by a single deed.
underwriting
Theprocess of evaluating a loan application to determine the risk involvedfor the lender. Underwriting involves an analysis of the borrower'screditworthiness and the quality of the property itself.
VA mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
wraparound mortgage
Amortgage that includes the remaining balance on an existing firstmortgage plus an additional amount requested by the mortgagor. Fullpayments on both mortgages are made to the wraparound mortgagee, whothen forwards the payments on the first mortgage to the first mortgagee.
