A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
1031 exchange
An exchange of business or investment property for another property of equal or lesser value for which Internal Revenue Service (IRS) Code 1031 allows capital-gains deferral. To satisfy the IRS regulations, a replacement property must be identified within 45 days of the sale of the original property and closing must occur within 180 days. Third-party 1031-exchange intermediaries, which monitor timing, prepare documentation and hold funds between sale and purchase, are often used.
40-year amortization with 30-year term
A loan that is due in 30 years but that is based on a 40-year principal-and-interest payment schedule. This type of loan allows for lower payments over the loan term. A balloon payment is due at the end of the term.
4506, 4506-T or 8821
Consent forms that grant the lender rights to obtain and verify borrowers’ tax-return information from the Internal Revenue Service (IRS). The forms are used for the following purposes:
Form 4506, “Request for Copy of Tax Return,” is used to obtain a complete copy of the tax returns submitted to the IRS.
Form 4506-T, “Request for Transcript,” is used to obtain a line-item summary of the tax returns submitted to the IRS, as well as 1099 and W-2 information.
Form 8821, “Tax Information Authorization,” is used to gain information about previous taxation issues. It is not used to obtain tax returns or transcripts.
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A
Acceleration
A mortgage lender’s right to demand immediate payment from borrowers upon default of their loan.
Acquisition and development
A loan provided for the purpose of developing raw land.
Additional advance
A supplemental loan given to borrowers while they are completing their mortgage transaction. These advances are often paid as a percentage of the mortgage.
Adjustable-rate mortgage (ARM)
A mortgage in which the interest rate is not fixed, but rather changes throughout the loan term. The type of ARM determines how often the rate changes and the index on which it is based.
Alt-A loans
Scotsman Guide defines Alt-A loans as those that require excellent credit scores (620 and greater) but that do not quite fit prime guidelines. Nontraditional earners who lack consistent verifiable income levels may qualify for these products, and therefore an expanded range of documentation types is offered.
Example: A typical Alt-A borrower might have a 680 FICO score and challenges providing full documentation of employment.
Amortization
A process by which borrowers make monthly principal payments to gradually reduce their mortgage debt.
Annual percentage rate (APR)
The annual cost associated with borrowed funds expressed as a percentage.
Appraisal
A dated, written document in which the property’s value has been determined by a qualified real estate expert. From a lending perspective, the appraised value is considered valid for 120 days.
Appreciation
The increase in value of an asset. Real estate may appreciate due to a number of factors, including: inflation-rate increases, limited supply of inventory, highly desired location or the local economy’s growth rate.
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Bank statement (6 months/12 months)
Documentation type that provides verifiable income and assets and is typically an alternative to full-doc. To prove that borrowers have an income stream sufficient to pay the loan back, lenders may request six or 12 months of historical bank statements. Typical borrowers for this type of loan might have restaurant or commission-based income; either their income is largely unreported or it fluctuates significantly.
Berm homes
Energy-efficient homes that are built above ground but that have earth mounded against the walls and sometimes over the roof. Having a portion of the home encased in earth helps regulate its inner temperature and prevents extreme temperature swings.
Biweekly mortgage
A lending structure in which half the monthly mortgage is paid every 14 days. This accelerates the amortization and results in one extra payment annually.
Bond
Long-term debt sold to investors. Mortgage loans are often bundled together and sold as mortgage-backed bonds. Proceeds from the sale of the bonds generate new revenue streams for banks, allowing them to continue issuing new loans.
Bridge loan
A short-term loan issued to a borrower until permanent financing becomes available.
Building permit
A government-issued document that gives a builder authority to construct or modify a structure.
Buydown
A lump sum paid when initiating a mortgage to ensure a lower interest rate. A buydown can be either permanent for the life of the loan or temporary, typically lasting for the first few years of the mortgage.
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C
Capital gain
The difference between an asset’s appreciation and the price paid when it was initially acquired.
Example: A homeowner who buys a house for $200,000 and sells it for $350,000 makes a $150,000 capital gain (profit).
Capital-gains tax
Tax on profits received from the sale of capital assets.
Cash-out refinance
Refinancing a current mortgage at a higher loan amount and taking the difference in cash.
Closing costs
Fees associated with the acquisition of real estate. These include, but are not limited to, lender fees, credit checks, title insurance, and survey and recording fees.
Combined loan to value (CLTV)
A percentage that represents the total of all mortgages on a property divided by the property value.
Example: A borrower’s residence is valued at $200,000. Currently, there are two mortgages on the property — one of $100,000 and one of $50,000, equaling $150,000. Dividing the total of the outstanding mortgages by the property value, the CLTV is 75 percent.
Comparables
Used to determine the market value of a property, based on comparisons of like-properties sold within a specific geographical area and time period. Also known as comps.
Condos: High-rise
A property complex, typically containing more than eight stories, that is divided into individual units and sold.
Condos: Low-rise
A property complex, usually no more than four stories, that typically contains 20 or more units that are individually sold.
Condo (Nonwarrantable)
A large property complex that is divided into individual units and sold. Nonwarrantable condos are not approved by Fannie Mae or Freddie Mac.
Condos can be classified as nonwarrantable for a number of reasons, including:
· the project is still in the early development phase
· the condo association has not been established or is still under control of the developer
· common areas are not complete
· minimum number of units have not been sold
· condos have recently been converted from apartments
· there are many non-owner-occupied units in the complex
Condotels
Condominium units rented out as hotel rooms to resort patrons.
Construction completion loan
A loan provided to cover project cost overruns. Typically, a bank will lend a set amount for construction projects, and if borrowers experience cost overruns, they are required to pay them (no additional bank funding is available). If borrowers experience a cash shortfall, construction completion loans cover the difference. Because the borrower is typically in a critical situation, the interest rates on these loans are generally higher.
Construction loan
A loan issued for the construction or major renovation of a property. As work is completed during the various stages of construction, money is paid out to borrowers incrementally in the form of draws.
Construction-to-permanent
A loan available to borrowers who have an agreement with a contractor to build their home. The borrower has one closing and signs just one set of loan documents instead of having separate loans to cover the construction and permanent phases.
Contingency
Funds reserved as a buffer to cover any cost overruns or unexpected expenses. In loan underwriting, this is often added to the estimated cost of a construction project. Typically calculated as a percentage of estimated construction costs.
Convertible mortgage
An adjustable-rate mortgage with an option to convert to a fixed-rate mortgage.
Conveyance
Transfer of a property title from one individual to another. Buyers must ensure the purchased property is free from any restrictions and that they obtain all rights associated with the land.
Co-ops
A process in which multiple residents of a building own shares in the corporation that owns the building, thus allowing them the right to occupy a specific apartment or unit.
Corporate apartments
Fully furnished apartments that provide an alternative to hotels for businesspeople who are relocating or working away from home for a period of time.
Correspondent (lender)
A correspondent lender is a mortgage broker/banker who originates, funds and then sells the mortgage loan through a correspondent lender relationship to a larger lender, in accord with the larger lender's underwriting guidelines and program offerings.
Cost-of-Funds Index (COFI)
The weighted-average interest rate paid by savings institutions in the 11th Federal Home Loan Bank (FHLB) district for their sources of funds, which include checking and savings accounts, certificates of deposit, money-market deposit accounts, passbook accounts, advances from the FHLB of San Francisco and money borrowed from other banks or financial institutions. This index is often used as a basis for adjustable-rate mortgages.
Credit report
A record of consumers’ credit activities. These activities are tracked by three credit bureaus: Equifax, Experian and TransUnion. According to the Federal Reserve Bank of San Francisco, four main categories are documented in personal credit reports:
1. Identifying information: Full name, any known aliases, current and previous addresses, Social Security number, year of birth, current and past employers and, if applicable, similar information about spouses.
2. Credit information: Accounts held with banks, retailers, credit card issuers, utility companies and other lenders. Listed by type of loan, such as mortgage, student loan, revolving credit or installment loan; the date the account was opened; the credit limit or loan amount; any co-signers of the loan; and consumers’ payment pattern over the past two years.
3. Public-records information: State and county court records on bankruptcy, tax liens or monetary judgments. Some consumer-reporting agencies also list nonmonetary judgments.
4. Recent inquiries: The names of those who have obtained copies of the consumer’s credit report within the past year or two years for employment purposes.
Credit score
A numerical valuation based on personal credit reports that is used to evaluate a borrower’s credit risk. The range on credit scores is 300 to 850. Also referred to as FICO score.
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D
Debt-to-income ratio (DTI)
A calculation based on total monthly debt payments divided by total monthly income. This is a percentage-based result and measures the level of lending risk.
Deed of trust
A public record that indicates a lien on a property. The lien represents a debt outstanding, and the property is held as collateral. If the debt is not paid, the lender can foreclose on the property. If the debt is paid in full, the lien will be canceled. When buying or selling a property, typically, any liens must be satisfied before closing.
Default
When a debtor is unable to pay a mortgage loan, resulting in a violation of the legal contract.
Deferred interest
Interest that accrues but that remains unpaid. For instance, on some adjustable-rate mortgages for which borrowers choose a fixed monthly payment, the monthly payment may not satisfy the entire monthly expense as the interest rate changes. The outstanding unpaid interest is added to the loan amount.
Department of Housing and Urban Development (HUD)
A department of the federal government that promotes private and public housing. HUD is responsible for enforcing the Fair Housing Act, which prohibits housing discrimination on the basis of color, religion, sex or disability. The Federal Housing Administration and Ginnie Mae are agencies within HUD.
Dome home
An energy-efficient home design patented by Buckminster Fuller. The design is a pared-down structure, which is intended to be analogous to nature’s own designs. The lower outside surface area helps create greater energy efficiency.
Downpayment
A borrower’s initial contribution toward a property purchase. To obtain a loan, most lending programs require some form of downpayment, based on a percentage of the total purchase price.
Draws on demand
Taking funds from a construction budget to pay suppliers and contractors on demand.
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Equity
The difference between a property’s market value and the outstanding loan amount.
Example: Homeowners whose home is valued at $200,000 and who have a $150,000 outstanding mortgage have $50,000 in equity.
Escrow account
A trust account in which cash or other assets are held to pay for expenses pending satisfaction of contractual obligations.
Example: An escrow account to pay for real estate taxes can be established to automatically pay a homeowner’s taxes at year-end.
Estate (property in probate)
All properties that are titled to a homeowner who is recently deceased. The property is ultimately distributed according to the decedent’s will.
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Fannie Mae
A government-sponsored enterprise that purchases loans from various lending institutions, bundles them together and sells them as mortgage-backed securities on the stock market. Fannie Mae does not lend funds directly, but by securitizing the loans, it frees capital for lending institutions, making funds available for future lending. Also known as Federal National Mortgage Association and FNMA.
Fannie Mae Desktop Originator
Fannie Mae database that allows mortgage brokers to submit online loan applications to approved Fannie Mae lenders
Fannie Mae Desktop Underwriter
Fannie Mae’s automated underwriting database. It analyzes the credit risk of loans that mortgage brokers submit electronically.
Fannie Mae MyCommunityMortgage
According to Fannie Mae, a loan program designed to meet the needs of low- and moderate-income borrowers.
Financial statements
Historical financial reports of assets, liabilities, capital, income and expenses.
Fixtures
Items that are attached to a property. These may include heating and air-conditioning systems, wall-mounted shelves and security systems.
Flood zone
A geographical area officially designated by the federal government, subject to potential flood damage. Lenders must complete a Federal Emergency Management Agency (FEMA) flood-hazard-determination form prior to funding a property. If the property is situated in a potential flood zone, it is required to carry flood-insurance protection. The 100-year flood plain — or areas where floods have a 1-percent chance of equaling or exceeding the elevation each year — is the basis for most FEMA determinations.
Foreign national
An individual who is currently in the country but who has not been granted the legal right to permanent residency.
Forward commitment
A lender’s promise to make a loan at a future date.
Fractional ownership
Collective ownership between a group of individuals who purchase a property, typically a second or vacation home. Shares of ownership are typically purchased from a management company, which also maintains the property’s scheduled usage and maintenance. Real estate fractional owners purchase in equally divided portions — fourths, eights, etc.
Free and clear
Ownership of an asset without debt obligations.
Freddie Mac
A government-sponsored enterprise that purchases loans from various lending institutions, bundles them together and sells them as mortgage-backed securities on the stock market. While Freddie Mac does not provide loans directly to consumers, by securitizing loans, it frees valuable funds for future loans. Also known as Federal Home Loan Mortgage Corp. and FHLMC.
Freddie Mac Loan Prospector
A risk-assessment tool that shows Freddie Mac’s credit and pricing terms.
Full-doc
Documentation type that has verifiable income, employment and assets. This is the most complete loan documentation type available and is often associated with the most-favorable lending rates.
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Garden apartments
First-floor or basement apartments with access to a garden or communal lawn. The term also can apply to apartments within a complex that features garden spaces as an amenity.
Ginnie Mae
A government-owned agency that buys mortgages from lending institutions, securitizes them and then sells them to investors, primarily loans insured or made by the Federal Housing Administration, Department of Veterans Affairs, Rural Housing Service, and the Office of Public and Indian Housing. Payments to investors are guaranteed by the U.S. government and, as a result, carry a slightly lower return on investment. Ginnie Mae does not lend funds directly, but by securitizing the loans, it frees capital for lending institutions, thus making funds available for future lending. Also known as Government National Mortgage Association and GNMA.
Good-faith deposit
A monetary deposit made by a purchaser to indicate genuine interest in the purchase of a property.
Good-faith estimate
A formal document that lists the estimated closing costs on a home mortgage. Lenders and/or brokers provide this document to borrowers within three days of the loan application. It is required by law and is intended to alleviate unnecessary surprises at closing. Although the good-faith estimate does not represent the final closing costs, it enables borrowers to compare different loan programs in a standardized format.
Govt. (FHA Direct Endorsement)
According to the U.S. Department of Housing and Urban Development (HUD), the mechanism that enables HUD/Federal Housing Administration-approved lenders to consider single-family mortgage applications without first submitting paperwork to HUD.
Govt. (VA)
Loan program offered to U.S. veterans and active service members with minimal fees, no mortgage insurance and no downpayment.
Graduated-payment mortgage
A loan designed to start with smaller initial payments. Payments then increase at a predetermined rate.
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H
Hard-money loans
A type of financing that typically provides funds for hard-to-fund projects or short-term purposes. Hard-money lenders generally give more consideration to the value of the property or collateral rather than to credit history. Loan-to-value ratios are usually less than 70 percent, and credit scores, if required, are less than 500. Hard-money lending is also referred to as private, equity or portfolio lending.
Home equity line of credit (HELOC)
A revolving, open-ended source of credit, secured by the borrower’s residence.
HUD-1 settlement statement
Form that is provided to borrowers by the closing agent. The form provides itemized documentation of all incoming and outgoing costs associated with closing the real estate transaction.
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Improved land
A parcel of land that has been developed for use. Improvements may include: electrical, water, telephone or sewer lines; grading, landscaping, roads or gutters; and construction of permanent structures.
Index
A published rate lenders use to structure adjustable loans. The rate is used as a benchmark when repricing loans at their stated intervals. While there are several indexes used as a basis, the most common are U.S. Treasury bills, London Interbank Offered Rate, Wall Street Journal Prime, Prime, 12-month treasury average and the cost-of-funds index.
Individual Taxpayer Identification Number (ITIN)
An alternative to a Social Security number, which is used for federal and state taxation purposes. ITINs are assigned to people who do not qualify for Social Security numbers, such as aliens working in the United States.
Installment loan
A loan that requires regular, fixed payments over a specific period of time, such as car and student loans.
Interest
The price paid for borrowing money, calculated on an annual percentage basis.
Interest-only payment loan
A mortgage in which the borrower’s payment goes entirely to the interest accrued on the loan and does not pay off any of the principal balance. The interest-only feature is set for a fixed amount of time (e.g., five or 10 years), after which time, the payment will reset and a new loan payment will be established. The new amount is typically higher and includes payments to both interest and principal.
Interest-rate cap
A provision made on adjustable-rate mortgages to limit the maximum possible interest rate. This protects borrowers from rapidly increasing interest rates and payment shock.
Interim financing
A short-term loan issued prior to permanent financing.
Investment property
Real estate owned for income or capital appreciation rather than the owner’s personal use.
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Joint tenancy
An ownership structure between two or more people. Under joint-tenancy law, if one of the owners dies, the surviving owners are granted the decedent’s interest.
Example: If a parent and child are joint tenants on a home, the child takes sole ownership of the home if the parent dies. As joint tenants in the property, no will is required to complete the transfer of ownership.
Jumbo loans
A loan that exceeds the maximum loan amount under Fannie Mae’s and Freddie Mac’s guidelines. This amount is subject to change annually.
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Leasehold improvements
The cost of improvements made on leased property, often paid by the tenant.
Lien
A legal claim against an asset for an outstanding debt. If the asset is sold, all liens against the asset must be cleared before a transfer of title can occur.
Loan-to-value ratio (LTV)
A percentage calculated by dividing the loan balance of a property by its market value. The higher the LTV, the greater risk for the lender. Consequently, loans with more than 80-percent LTV have higher interest rates and typically require private mortgage insurance.
Lock-in
Committing to the interest rate and points on a loan prior to funding. In a fluctuating interest-rate environment, it may be beneficial for borrowers to secure a particular interest rate while their loan is still in process.
Lock-out period
A set time after a mortgage is originated and funded in which prepayment of the loan is not allowed.
Lock without property address
Securing an interest rate with a mortgage lender before knowing the subject property’s address.
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Manufactured homes (Doublewide, post-June 1976 construction)
Prefabricated houses that are built in a factory and that consist of two mobile homes bolted together as a single residence. In 1976, the U.S. Department of Housing and Urban Development (HUD) established a consumer-protection program to regulate the manufacture of factory-built housing. Each home bears a red label indicating it has met the construction and safety standard. HUD standards cover “body and frame requirements, thermal protection, plumbing, electrical, fire safety and other aspects of the home.” – U.S. Department of Housing and Urban Development
Manufactured homes (Pre-1976 construction, real property)
Prefabricated houses that are built in a factory and then towed to the property site where they will be occupied. Prior to 1976, manufactured homes were commonly referred to as mobile homes.
Market value
Determined by a property appraisal, an estimate of what a buyer would expect to pay for an asset under current market conditions.
Maturity
The time at which a loan’s principal balance must be paid.
Mixed-use properties
Properties built/zoned for commercial and residential use. They typically feature ground-level commercial space with residential apartments or condominiums above.
Mobile home w/vehicular title
A dwelling that is built on an internal chassis, assembled in a factory and transported in one or more sections. Like cars, mobile homes require a certificate of title.
Modular homes
Prefabricated houses that are built in a factory and then transported to a property site by truck and assembled onsite. Modular homes differ from manufactured homes in that they lack axles and a frame and are transported in sections on a flatbed truck rather than towed as a complete structure.
Mortgage
A loan that is paid over time and secured by real estate. The lender retains the legal right to sell the property if there is a breach in contract, such as a failure to pay.
Mortgage broker
An individual who sources mortgage loans and serves as an intermediary between borrowers and lenders. Brokers charge a fee for their services, which is typically based on a percentage of the loan amount.
Multifamily
Properties that are constructed for multiple-family use, such as apartments or duplexes. If the building is sold as a complete unit, condominiums can also be considered multifamily properties. However, condominiums typically are sold as individual units and therefore not considered multifamily.
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N
Negative amortization
Occurs when monthly payments are not large enough to pay the monthly interest on a mortgage. Consequently, the outstanding interest due is added to the unpaid principal balance. While the borrower makes consistent monthly payments, over time, it is possible to owe significantly more in principal than when the loan was originally acquired.
Net-branch broker
An outpost or home office for a broker associated with a lender in another area. Net-branch brokers typically purchase their own equipment and hire their own support staff. Compensation, support and other benefits come from the home office and vary greatly among lenders.
Net-branch company
An umbrella organization that hires professionals to originate loans at a branch location on its behalf. Advantages include being able to focus primarily on loan originations and less on the operational aspects, to offer a wider range of products and to originate loans in more states. Each net-branch company is structured differently, and the level of support and fees vary significantly. Typically, the branch operator receives the “net profits” from the loan, and the net-branch company receives an administrative fee and/or some portion of the commission. State laws vary and net-branching arrangements may be illegal in some states.
No doc
Documentation type in which borrowers are unable to verify their employment, income or assets. This type of loan represents the highest risk for the lender.
No income, no assets (NINA)
Documentation type in which employment is verifiable, but income and assets are not.
No income, stated assets (NISA)
Documentation type in which the borrower is unable to verify income. Borrower has assets but the value is not documented.
No income, verified assets (NIVA)
Documentation type in which the borrower’s employment and assets are verifiable, but income is not.
Non-owner-occupied property
Income-producing property in which the owner does not live or operate a business from. Many lenders consider non-owner-occupied properties to be higher-risk, and as a result, mortgages for these properties may carry a higher interest rate.
No-payment option
A loan feature that allows borrowers to defer making payments for a specified period of time.
Nonprime loan
Scotsman Guide defines nonprime loans as those that allow FICO scores as low as 500 and mortgage lates of as many as 120 days. To compensate for the less-favorable credit profile, the loan-to-value ratios are generally lower, and most documentation types are limited to full or stated.
Nonrecourse loan
A loan that is secured by collateral (e.g., a home or building), but for which the borrower is not held personally liable. If the lender seizes the property and the sale does not cover the loan, the borrower is not responsible for the shortfall. Nonrecourse loans typically have a lower loan to value (80 percent to 90 percent) to ensure the lender is protected should the loan go into default.
Nonresident aliens
Lawful residence granted to foreigners living and working in the United States on a nonimmigrant visa. The most-common types of visas are tied to a sponsoring institution or employer (e.g., EB-1, F-1, H-1B, J-1, etc.). For tax purposes, nonresident aliens are taxed on U.S.-based trade, business or employment income.
No ratio
Documentation type in which the debt-to-income ratio cannot be calculated because income has not been reported.
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O
On-time completion bonus
A bonus given to a contractor for finishing the construction of a home or commercial project within the allotted timeframe.
Option ARM
An adjustable-rate mortgage where the borrower has a choice of a predetermined payment option each month. Typically a borrower has four payment options:
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The minimum payment (this usually results in negative amortization)
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Interest-only payment
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15-year amortization payment
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30-year amortization payment
Owner-builder
A homeowner or property-owner who assumes responsibility for the overall job of building a property, rather than using a general contractor.
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P
Payment cap
A provision on some adjustable-rate-mortgage agreements that limits the maximum monthly payment to protect the borrower from payment shock.
Permanent resident aliens
Foreigners who have been granted permanent residence in the United States and have been issued a permanent-resident card (aka, green card) but who do not have U.S. citizenship. For tax purposes, permanent residents are taxed on their global income.
Pledged-asset option
Loan programs that allow borrowers to finance 100 percent of the purchase price by using the subject property and a portion of their investment account as collateral.
Power of attorney
The legal right to make decisions on another’s behalf, provided that person does not become incompetent or disabled.
Prepayment
Early repayment of a loan.
Prepayment penalty
A fee charged to borrowers for early repayment of their loan. When a lender issues a note, it anticipates a guaranteed rate of return on its investment. If the loan is paid off early, this has financial impact on the lender; consequently, this is passed on to the borrower in the form of a prepayment penalty. While it varies on a case-by-case basis, the fee is often calculated based on a percentage of the overall loan and gradually decreases over time.
Example: Borrowers may incur a 10-percent prepayment fee if the note is for held less than a year, but if the note is held for 10 years, they may be charged a 1-percent fee.
Prime loan
Scotsman Guide defines prime loans as those that have traditional conforming credit guidelines, yet include loans exceeding Fannie Mae and Freddie Mac loan limits (i.e., jumbo loans). Minimum FICO scores are 620 and greater, few mortgage late payments are allowed (zero or one within 12 months), and traditional documentation and underwriting criteria are expected.
Principal
The original amount of money borrowed on a loan.
Principal reductions with reamortization
Reducing the loan’s principal balance and applying the existing interest rate to the remaining principal over the life of the original loan term.
Private money
Typically short-term, high-interest-rate loans by private individuals or small companies. Although the rates for these loans are often higher than conventional loans, private-money loans are often available when other lending sources aren’t. Also known as hard money.
Private mortgage insurance (PMI)
Insurance coverage that protects the lender in the event of a loan default. When borrowers take a loan with less than 20 percent toward the purchase price, lenders will require PMI.
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Quit-claim deed
A legal term indicating one party has terminated its interest in the property.
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R
Raw land
Land that remains unused and in its natural state. Raw land is historically free from any improvements such as grading, construction or subdividing.
Refinancing
Process by which a loan is paid off with proceeds received from a new loan. The same property is used as collateral for the new loan. Loans may be refinanced for several reasons, including more-favorable terms, change of lenders, access to equity, change of guarantors, etc.
Reverse mortgage
A mortgage in which homeowners aged 62 or older can receive payments by borrowing against the present and future equity of their home. Reverse-mortgage borrowers must live in the house at least six months out of the year. It is important to note: Any existing debt on the property must be paid off with the reverse-mortgage funds.
According to AARP, cash received from the reverse mortgage can be paid out as:
· a one-time lump sum
· a regular monthly cash advance
· a “credit line” account that provides cash reserves available on demand
· a combination of the above payment methods
Right of rescission
A three-day period after refinancing or obtaining a line of credit during which borrowers can back out of the loan.
Rural properties
Dwellings located in areas of low-population density.
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S
Seasoned loans
Traditionally, loans held for more than one year. However, in the rapidly changing rate environment, seasoning is often quantified in months.
Seasoning/appraisal
The maximum period of time that the most recent appraisal can be considered valid.
Seasoning/ownership
The minimum period of time that borrowers must own their home before they can refinance or sell their home.
Seasoning/source of funds
The minimum period of time that borrowers must have downpayment funds in their possession.
Second dwelling on a single tax lot
A residence that is located on the same parcel of land as another residence.
Second home (or Vacation home)
A home owned in addition to the owner’s primary residence.
Second mortgage
A mortgage where the property has already been pledged as collateral. Second mortgages became popular as a means to provide the borrower additional cash for debt consolidation, remodeling and other expenses and also as a way to avoid paying private mortgage insurance on highly leveraged properties. The second mortgage is subordinate to the first deed of trust.
Seller carry-back
An agreement in which the seller provides financing for all or part of the purchase price.
Speculative home (spec home)
A new home that is being constructed without a prospective buyer in place.
Stated income, stated assets (SISA)
Documentation type in which the borrower has verifiable employment but cannot verify income or assets. Interest rates for this type of loan are typically higher.
Stated income, verified assets (SIVA)
Documentation type in which borrowers have verifiable employment and assets but cannot verify income. Instead, they state what their income is. Typical borrowers for this loan type work on commission or have a significant amount of income from tips (e.g., restaurant wait staff). Assets are verified through bank and brokerage accounts, etc.
Subdivision construction loans
Loans for the construction of single-family and multifamily subdivisions, typically ranging from two to 30 homes. Financing is provided for all phases, including land acquisition, development and construction.
Subordinate financing
A secondary or “junior” lien on a property. If there is a foreclosure, the primary-lien holder is paid first. For lenders, taking a subordinate position involves more risk, as well as the potential that they won’t get paid in a foreclosure situation. Consequently, the interest rate is usually higher.
Sweat equity
Providing labor, rather than cash, toward the completion of a project. Often this term applies to a property under construction for which the owners do some of the work. This is a cost-saving technique with a fair market value. Lenders accept sweat equity on a case-by-case basis, which varies by lender.
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T
Tenants in common (TIC)
Two or more individuals holding title on a property.
Title
Evidence of legal ownership. With real estate, it establishes the owner’s right to occupy and eventually sell the property without a third-party interest.
Title insurance
Insurance policy that protects borrowers and lenders against title defects. The fee for this is typically included in real estate closing costs and paid to a title company or attorney who provides due diligence to ensure the property is marketable.
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Underwriting
Process used by lenders to determine borrower eligibility and ability to repay a loan. A number of factors are evaluated, including personal credit history, financial statements, employment history and salary.
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V
Verified income, no assets (VINA)
Documentation type in which the borrower has income that is verifiable (via bank statements, W2s or company statements) but is unable to document asset value. Although the borrower may have assets, their true value is unknown and often cannot be verified until a sale takes place (e.g., an antique car).
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W
Warehouse line
A line of credit extended to mortgage bankers to allow them to provide mortgage loans. With the line, they often can make quicker lending decisions and fund loans faster than the typical bank approval process.
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