MORTGAGE TERMINOLOGY

Back-to-Back Escrow

An escrow set up to facilitate the simultaneous purchase of one property and the sale of another property by the same party.

Back-to-Back Settlement

Transactions involving selling one home and purchasing another on the same day, usually within hours of one another.

Backup offer

A secondary offer to buy property although the first offer has been accepted, useful in case the first offer fails.

Balance Sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage

A mortgage in which the borrower's monthly payments are amortized over a longer term than the actual term of the loan. As a result, the borrower must pay off the outstanding balance with a lump sum payment or refinance the loan at the end of the mortgage term.

Balloon Payment

The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankruptcy

A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a court-appointed trustee.

Base Mortgage Amount

The mortgage amount before financed mortgage insurance or VA funding fee is added.

Basis

The cost of a property, including improvements, refinancing costs, closing costs, and similar costs, less depreciation. Basis is used for tax purposes to calculate any profit or loss realized on the sale of a property.

Basis Point

One one-hundredth of one percent. Used primarily to describe changes in yield or price on debt instruments, including mortgages and mortgage-backed securities.

Bear Market

A market characterized by falling prices. A bear market in the mortgage industry may be triggered by rising interest rates.

Before-Tax Income

Income before taxes are deducted.

Bedroom Community

A suburban residential area where most residents commute to neighboring metropolitan areas to work.

Beneficiary

The person designated to receive the income from a trust, estate, or a deed of trust.

Bequeath

To transfer personal property through a will.

Bernard Rule

Method of appraising corner lots which takes into consideration the value of the lot portions facing each street. Also called the "Baltimore Rule."

Betterment

An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

Bill of Sale

A written document that transfers title to personal property.

Binder

A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly Mortgages

Your lender will probably tell you that a biweekly mortgage is structured just like a traditional fixed-rate, level-payment, fully amortizing mortgage. However, you make your payments every 14 days instead of once a month. The monthly payment is split in half, resulting in the same total monthly mortgage, but the resulting 26 and sometimes 27 biweekly payments a year translate into 13 monthly payments, or one extra monthly payment per year. Borrowers can qualify for a 30-year monthly payment amount, but get a loan that pays off in approximately 22 years at current interest rates. At higher rates, the actual term declines. If you are looking to build up equity in your home faster without the higher mortgage payments that come with a shorter-term mortgage, you may want to consider the biweekly mortgage. Payments can be deducted from your bank account and scheduled to coincide with your payroll deposits to simplify budgeting. Lenders may charge an initial set-up fee to automatically debit your checking account.

Blanket Insurance Policy

A single policy that covers more than one piece of property (or more than one person).

Blanket Mortgage

The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Board of Governors of the Federal Reserve System

Governing body of the Federal Reserve System that regulates all national and state-chartered banks in the Federal Reserve System and sets and regulates monetary policy. Commonly known as "the Fed."

Bona fide

In good faith, without fraud.

Bond

An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Bond Loan

A state-sponsored method of assisting low income borrowers and first time home- owners in the purchase of a home at a reduced interest rate.

Borrower

One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.

Bottom Ratio

See DEBT-TO-INCOME RATIO.

Breach

A violation of any legal obligation.

Bridge Loan

A short-term loan collateralized by the borrower's present home (which is usually for sale) that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

Broker

A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. See also "Mortgage Broker"

Budget

A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Budget Category

A category of income or expense data used in a budget. "Rent" is an example of an expense category. "Salary" is a typical income category.

Builder's Risk Insurance

Fire and extended coverage insurance for a building under construction. Coverage increases automatically as the building progresses and terminates at completion.

Building Code

Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Building Permit

Written authorization from a local government for the construction of a new building, or for extensive repairs or improvements on an existing structure.

Built-Ins

Permanent, immovable appliances or similar features.

Buydown Account

An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

Buydown Mortgage

A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

Buyer's Market

Economic conditions in which the supply of housing exceeds demand. Sellers may be forced to make substantial price concessions.