Centex Glossary
Whether or not you’re new to buying property, it helps to know the lingo. Boost your financing savvy (and your confidence) by getting familiar with these terms.
A
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically according to a pre-selected index. Payments may go up or down accordingly.
Affiliated Business Disclosure
A disclosure given by Pulte Mortgage, LLC, an affiliate of Pulte Homes, Inc. outlining the service provided and cost of using the affiliated party's service.
Alternative Credit Offer
An offer to extend credit on different terms than the applicant originally requested.
Amortization
The systematic and continuous payment of an obligation through installments until the debt has been paid in full.
Annual Percentage Rate (APR)
The cost of credit expressed as an annual rate. It usually includes a combination of the interest rate, points and certain other fees paid to a lender to acquire a mortgage. The APR is the most meaningful measure for comparing the cost of mortgage loans offered by different lenders.
Application
A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.
Appraisal
A report made by a qualified person setting forth an opinion or estimate of property value. The term also refers to the process by which this estimate is obtained.
Approval Letter
A lender's written offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and any other conditions. It can also serve as a communication of the lender's decision to the borrower's application.
APR (Annual Percentage Rate)
The cost of credit expressed as an annual rate. It usually includes a combination of the interest rate, points, and certain other fees paid to a lender to acquire a mortgage. The APR is the most meaningful measure for comparing the cost of mortgage loans offered by different lenders.
ARM Adjustable Rate Mortgage
A mortgage in which the interest rate is adjusted periodically according to a pre-selected index. Payments may go up or down accordingly.
Assessed Valuation
A payment to the lender from the seller, buyer, or third party, causing the lender to reduce the interest rate.
B
Buy Down
A payment to the lender from the seller, buyer, or third party, causing the lender to reduce the interest rate.
C
Cash to Close
Liquid assets readily available to pay the down payment, closing costs, and prepaid items of a mortgage transaction.
Certificate of Occupancy
A certificate issued by a local building department to a builder or renovator, stating that the building is in proper condition to be occupied and stating the legally permissible use of the building.
Closing
The meeting during which the title to the property actually changes hands, documents are executed and the sale of the property and/or the loan is completed.
Closing Costs
Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey, and pre-paid items such as tax and insurance escrow payments.
Closing Statement/HUD/Settlement Statement
A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.
Co-Borrower
Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appear on documents with equal legal obligations.
Commitment Fee (Loan)
Any fee paid by a potential borrower to a lender for the lender's promise to lend money at a specified rate and within a given time period.
Covenant
Generally, almost any promise set forth in a written agreement. Most commonly, assurances set forth in a deed by the grantor or implied by law.
Credit Report
A report detailing an individual's credit history.
D
Debt-to-Income Ratio
A ratio lenders use to determine if a borrower is able to repay a loan. It compares monthly payments on existing debts, and on the presumed new loan, to monthly income. Income divided by expenses results in a percentage; the higher that percentage, the riskier the loan is considered to be for the lender.
Deed
A legal document conveying title (ownership) to real property from one individual to another.
Deed of Trust
An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.
Deliquency
A loan payment that is overdue but within the period allowed before actual default is declared.
DeMinimus PUD
A Planned Unit Development (PUD) in which the common property has less than a two % influence upon the value of the premises. The two % rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units.
Department of Housing and Urban Development (HUD)
Organization responsible for the implementation and administration of government housing and urban development programs.
Discount Point(s)
An amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point is equal to one percent of the loan amount.
Down payment
The money the homebuyer pays at the time of closing for the purchase of the home. It reduces the amount financed.
E
Earnest Money
A portion of the down payment delivered to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith.
Easement
A right created by grant, reservation, agreement, prescription, or necessary implication which one has on another's land (such as a public utility easement).
Encroachment
Improvements, such as a wall, fence, building, etc., on the property of another.
Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs, or past exercising of rights under the Consumer Credit Protection Act.
Equity
The market value of property minus any outstanding mortgage or cooperative loan balance or other encumbrance on the property.
Escrow
Funds held by the lender, set aside for payment of taxes and possible property and mortgage insurance and other recurring charges against real property. (Monthly mortgage payments usually include principal, interest, and escrow amounts.) Also a procedure whereby a disinterested third party handles legal documents and funds on behalf of a seller and buyer.
F
Fair Credit Reporting Act FCRA
A Federal law that requires a lender who is declining a loan request because of adverse credit information to inform the borrower of the source of such information.
Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)
A corporation authorized by Congress which purchases residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages. It sells participation certificates whose principal and interest are guaranteed by FHLMC.
Federal National Mortgage Association - FNMA (FANNIE MAE)
A corporation authorized by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.
Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments during the term of the loan, any interim interest paid at closing, your origination fee, and any other charges paid to the lender or to a third party as a condition of the extension of credit. Certain charges like the appraisal, credit report, and the title search charges are not included in the finance charge calculation.
First Mortgage
A real estate loan that has priority over any subsequently recorded mortgages.
Fixed Interest Rate
An interest rate that does not change during the loan term.
Fixed-Rate Mortgage
A mortgage with an interest rate that stays the same for the entire duration of the loan.
Flood Insurance
Insurance protecting against loss by flood damage, required by lenders in areas designated (federally) as potential flood areas.
Foreclosure
A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.
G
Gift Letter
A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."
Good Faith Estimate
An estimate of charges that a borrower is likely to incur in connection with a settlement.
Gross Monthly Income
Total monthly income earned before tax and other deductions.
Guaranteed Loans
A loan guaranteed by Veteran's Administration or Rural Development. The guarantee protects the lender against loss incurred by a mortgage default.
H
Hazard Insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Homeowners Association Dues
The fees imposed by a condominium or homeowners' association for maintenance of common areas.
Homeowners Insurance
An insurance policy that covers loss or damage to property (hazard coverage) as well as personal liability and theft coverage.
I
Index
A published interest rate not controlled by the lender to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked to it may increase or decrease.
Insured Loans
A loan insured by Federal Housing Authority (FHA) or a private mortgage insurance company. See Mortgage Insurance Premium or MIP.
Interest
A share or right in some property. Also, money charged for the use of money (principal).
Interest Rate Cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
Interest-Only Mortgage
A type of adjustable-rate mortgage that allows the borrower to make payments that are applied only to the interest on the loan, and not to the principal, for a specified period of time. This type of loan is considered high-risk.
Investment Property
Real estate owned with the intent of earning income and not intended for owner occupancy.
J
Joint Tenancy
Joint ownership by two or more persons with right of survivorship; all joint tenants own equal interest and have equal rights in the property.
L
Lien
An encumbrance against property for money due, either voluntary or involuntary.
Loan Estimate
An estimate of charges that a borrower is likely to incur in connection with a settlement.
Loan-To-Value Ratio (LVT)
The ratio of the amount of your mortgage loan and the lower of sales price or appraised value.
M
Margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.
Maturity
Termination or due date on which final payment on a loan must be paid in full.
Monthly Payment
Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.
Mortgage
The conveyance of an interest in real property given as security for the payment of a loan.
Mortgage Insurance
Insurance protecting the mortgage lender against loss incurred by a mortgage default.
Mortgage Note
A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.
Mortgagee
The lender in a mortgage transaction.
Mortgagor
The borrower in a mortgage transaction who pledges property as security for a debt.
N
Negative Amortization
Occurs when the monthly payments cover only part of the interest then due. The interest cost that is not covered is added to the unpaid principal balance. This additional amount is additional principal.
Non-Conforming Loan
Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a higher rate and origination fee.
Note
A written agreement containing a promise of the signer to pay to a named person, or bearer, a definite sum of money at a specified date or on demand.
O
Occupancy
The use of a property as a full-time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).
Origination Fee
The amount charged for services performed by the company handling the initial application and processing of the loan. Usually a percentage of the loan amount.
P
PITI (Principal, Interest, Taxes, and Insurance)
The most common components of a monthly mortgage payment.
Point
One percent of the amount of the loan.
Preliminary Title Report
The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.
Prepaid Items
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
Primary Residence
A residence that the borrower intends to occupy as a principal residence.
Principal
Amount of debt, not including interest. The face value of a note or mortgage.
Principal, Interest, Taxes and Insurance (PITI)
The components that make up the total monthly loan payment on your mortgage loan.
Private Mortgage Insurance (PMI)
An insurance policy that a lender usually requires a borrower to obtain if their down payment is less than 20% of the sale price. It protects the lender in the case that a borrower defaults on their loan.
Private Mortgage Insurance (PMI)
An insurance policy that a lender usually requires a borrower to obtain if their down payment is less than 20% of the sale price. It protects the lender in the case that a borrower defaults on their loan.
Processing
The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.
PUD (Planned Unit Development)
A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners. The association of unit owners generally owns, pays fees, and maintains the common areas. Also see DeMinimus PUD.
Purchase Contract
An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.
Q
Qualifying Ratios
The ratio of fixed monthly expenses to gross monthly income. Used to determine how much the homebuyer can afford to borrow.
R
Rate Lock
An agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time.
Real Estate Settlement Procedures Act (RESPA)
A Federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and servicing disclosure.
Real Property
Land and that which is affixed to it.
Refinancing
The repayment of a debt from the proceeds of a new loan using the same property as security.
Residential Mortgage Credit Report
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.
S
Second Home (Vacation Home, Weekend Home)
A residence other than the borrower's primary residence, which the borrower intends to occupy for a portion of each year.
Secondary Mortgage Market
A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.
Security
In lending, the collateral given, deposited, or pledged to secure the payment of a debt.
Settlement/Closing
When buyer and seller complete the transfer of the property. During this meeting, the title to the property is transferred to the buyer, the documents are signed and the sale is completed.
Survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.
T
Title Insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.
Title Search
Title Search - An examination of public records to disclose the past and current facts regarding the ownership and lien priority of a given piece of real estate.
Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio
Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
U
Underwriting
Analysis of credit risk on a specific rate and term for a mortgage on a given property for given borrowers.