-
Late charge: The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
-
Lease: A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
-
Leasehold estate: A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
-
Lease-purchase mortgage loan: An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.
-
Legal description: A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
-
Leverage: Financial leverage is a method of increasing the return on an investment by borrowing some of the funds for the investment at an interest rate that is less than your return on the investment.
-
Liabilities: A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
-
Liability insurance: Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.
-
Lien: A charge or encumbrance against a property making it security for the payment of a debt, judgment, mortgage, or taxes.
-
Lifetime payment cap: For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See Cap.
-
Lifetime rate cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See Cap.
-
Like-kind exchange: A transaction that complies with Section 1031 of the IRC that deals with tax-deferred exchanges of certain property. General rules for a tax-deferred exchange of real estate are that three possible replacement properties are identified within 45 days and one of those properties closes within 180 days and the properties must be: exchanged or qualify as a delayed tax-free exchange; like-kind property (real estate for real estate); and held for use in a trade or business or held as an investment.
-
Like-kind property: Properties that have the same nature or are similar.
-
Limited liability company: An entity created under state law that is taxed like a partnership, but where the liability of the owners is limited to their investment in the company.
-
Limited partner: An investor in a partnership whose personal liability is limited and whose interest is generally considered passive for income tax purposes.
-
Line of credit: An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See Home equity line of credit.
-
Liquid asset: A cash asset or an asset that is easily converted into cash.
-
Living trust: A trust that is created and may be changed or terminated during the trustmaker’s lifetime as long as he or she is competent. The trust becomes irrevocable upon the trustmaker’s death. This type of trust is used primarily to avoid probate and manage property but it does not offer any tax savings.
-
Loan: A sum of borrowed money (principal) that is generally repaid with interest.
-
Loan commitment: See Commitment letter.
-
Loan origination: The process by which a mortgage lender brings into existence a mortgage secured by real property.
-
Loan-to-value (LTV) percentage: The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.
-
Loan-to-value ratio (LTV): The portion of the amount borrowed compared to the cost or value of the property purchased – that is, mortgage debt divided by the value of the property. Lenders are often constrained as to the maximum loan-to-value ratio on loans they originate. Loans on commercial property by pension funds, banks, and insurance companies are typically limited to a maximum of 70-80% of value. Loans on owner-occupied houses or condominiums may reach a 90-95% ratio when mortgage insurance is used.
-
Lock-in: A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
-
Lock-in period: The time period during which the lender has guaranteed an interest rate to a borrower. See Lock-in.