Mortgage Glossary

Abstract of Title

A written history of all the transactions related to the title for a specific tract of land. An abstract of title covers the period from the original source of title (often the original land grant from the United States government to an individual) to the present time and summarizes all subsequent documents that have been recorded against that tract.

Acceleration Clause

The clause in a mortgage or trust deed that stipulates the entire debt is due immediately if the mortgagee defaults under the terms of the contract.

Acceptance

A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.

Account Termination Fee

A fee that may be charged if you pay in full and terminate your home equity line of credit during the first 5 years. Paying down to a zero balance does not count as termination. See also: prepayment penalty.

Acquisition Cost

Under an FHA loan, the purchase price or appraised value of the property plus the estimated closing costs.

Acre

a land measurement commonly used in U.S. property negotiations. One acre equals 43,560 square feet.

Additional Principal Payment

A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable Rate Mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.

Adjusted Book Basis

The purchase price of a property plus any capital improvements less accrued depreciation, if any, to the date of the sale.

Adjustment Date

The date the interest rate changes on an ARM (adjustable rate mortgage).

Adjustment Interval

For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

Affordability Analysis

A preliminary analysis of a borrower’s ability to afford the purchase of a home that takes into consideration factors such as income, liabilities and available funds, as well as the type of home loan, the likely taxes and insurance for the home and the estimated closing costs.

Amortization

The gradual reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Amortization Table Or Schedule

A timetable or schedule that gives you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you’ll be repaying during your mortgage term.

Amortization Term

The amount of time required to amortize (pay off) the loan, expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

Annual Adjustment Cap

A limit on how much the variable interest rate on a loan can increase or decrease each year.

Annual Percentage Rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discounts points and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the costs of similar credit transactions.

Annuity

A series of income payments of receipts over a period of years.

Application

A mortgage application requires borrowers to submit information regarding their income, savings, assets, debts, and more.

Application Fee

Nonrefundable fees paid when you apply for your loan. These fees may include charges for items such as, for example, a credit profile or a property appraisal.

Appraisal Contingency

A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price.

Appraisal Or Appraised Value

An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.

Appreciation

An increase in the value of property over time. Important factors in a home’s appreciation are its location, condition and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity line of credit.

Approved Term (After Approval)

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: Term

Approved Term (Before Approval)

The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan. See also: Term

Assessed Value

The value of a property, established by a public tax assessor. The assessed value is used to determine property taxes.

Assessment

Determining a property’s value for the purpose of taxation.

Asset

Valuable items, encumbered or not, owned by a person, corporation, or entity.

Assignment

The method of transferring a right or contract, such as the terms of a loan, from one person to another.

Assumable Loan

These loans may be passed on from a seller of a home to the buyer. The buyer “assumes” all outstanding payments.

Assumable Mortgage

A mortgage that provides for a buyer to “assume” all outstanding payments when a home is sold. The buyer usually must meet qualification standards to assume a loan.

Assumption

Buying property and assuming the responsibility of the exiting mortgage.

Attorney Fees

fees possibly due during closing.

Balance Sheet

A dated financial statement (in table form) that shows your assets, liabilities and net worth.

Balloon Loan

A loan that provides you with lower-than-usual monthly payments for a set period of time followed by a payment larger than usual at the end of your loan repayment period. While a balloon loan may lower your monthly payments it can also mean you make higher interest payments over the life of the loan.

Balloon Mortgage

Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single “balloon” payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.

Balloon Payment

The final lump sum that is paid at the end of the balloon mortgage.

Bankruptcy

A tactic that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. The most common form of individual bankruptcy is a Chapter 7, when an individual frees himself from most of his/her debts. Borrowers who have undergone bankruptcy usually cannot qualify for “A” paper loans until after two years after declaration and a re-establishment of credit.

Base Rate

An interest rate that is used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans and credit cards.

Basis Point

An amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.50% or $1,000.

Best Faith Estimate

An estimate of the total costs for securing a real estate loan, that is given to borrowers prior to closing.

Bill Of Sale

A written document that transfers a title to personal property.

Biweekly Mortgage

Mortgage loan payments that requires a payment twice monthly, yielding thirteen payments per year instead of twelve. This significantly reduces the time a principal is paid off.

Blanket Mortgage

A mortgage secured by the pledging of more than one property or collateral.

Bond

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

Book Value

Acquisition costs less any accrued depreciation.

Borrower

the individual or individuals extended a loan and mortgage for the purchase of a house and/or property. Borrower is responsible for making all payments and fees associated with the loan over the life of the loan.

Break Even Point

The point at which total income equals total expenses. Also used in connection with decisions related to purchasing discount points on a mortgage. Calculating the break even point will identify how many months it will take to recoup the costs associated with paying for the discount point amount under consideration.

Bridge Loan

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a bridge loan might be taken out by a borrower and secured by that borrower’s present home so that the closing on a new house can take place before the present home is sold.

Broker

A third party who arranges funding or negotiates a contract between parties, but does not lend the money.

Broker Fees

Fees charged by a real estate broker or a mortgage broker for providing assistance in a real estate transaction.

Budget Mortgage

A mortgage that includes a portion for taxes and insurance as well as principal and interest.

Buydown

The lump-sum prepayment of all or a portion of your mortgage interest by a lender or homebuilder in order to lower your monthly mortgage payment, typically for a period of 1-3 years.

Buyer's Agent

real estate agent that works on behalf of the homebuyer.

Call Option

A provision in a loan that gives the lender the right to accelerate the debt and require full payment of the loan immediately at the end of a specified period or for specified reason.

Callable Debt

A debt security in where the issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity date.

Cap

A limit on how much a variable interest rate can increase. Many adjustable-rate mortgages have both annual (or semiannual) rate caps and lifetime caps. They limit the amount your payments can increase in an adjustment period and over the life of the loan.

Capital Gain

profit earned on an asset, such as a home or property.

Capital Gain Tax

a tax levied against the profit made on the sale of a home and/or property.

Carryback Loan

A loan in which a seller agrees to finance a buyer in order to complete a property sale.

Cash Available For Closing

Borrower funds that are available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from specified sources, the borrower’s cash available for closing does not include cash reserves or money from those specified sources.

Cash To Close

The amount a homebuyer needs in cash at the closing of the loan. This typically, this includes down payment and closing costs.

Cash-Out Refinance

A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement or any other purpose.

Ceiling Rate

The maximum interest rate that can accrue on a variable rate loan or adjustable-rate mortgage (ARM).

Certificate Of Eligibility

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) loan.

Certificate Of Reasonable Value (CRV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan, based on an approved appraisal.

Certificate Of Title

A statement provided by an abstract company, title company or attorney stating who holds title to real estate based on the public record.

Chain Of title

The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Clear Title

A title that is free of liens or any legal question as to the ownership of the property.

Close

The Close step is the date you will sign and execute your new loan documents.

Depending on the location of the property or type of transaction, the 3 business days right of rescission period may apply before your funds are available to you.

The 3 business days right of rescission period states that in certain real estate secured transactions that involve the refinance of a primary residence, the Truth in Lending Act allows applicants 3 business days to cancel the transaction and prohibits lenders from disbursing proceeds until after the rescission period has lapsed.

Closing

Final arrangements to transfer title of property as well as allocate charges and credits.

Closing Agent

the person responsible for mediating the closing, documenting the process and assuring all associated paperwork is completed. May be an attorney or official from a title or mortgage company.

Closing Costs

Closing costs, also known as settlement costs, are the costs incurred when obtaining your loan. For new purchases, these costs also include ownership transfer of any collateral property from the seller to you. Costs may include and are not limited to: attorney's fees, preparation and title search fees, discount points, appraisal fees, title insurance, and credit report charges. They are typically about 3% of your loan amount, and are often paid at closing or just before your loan closes.

Funds often needed to close a loan, such as homeowners insurance, property taxes, and escrow impound account funds, aren't included in closing costs and are considered separate. You should be prepared to pay these costs before your loan closes.

Closing Date

The date you will sign your new loan documents.

Closing Disclosure (CD)

A closing document provides key information such as interest rate, monthly payments, and costs to close the loan. Consumers are required to receive this form no later than 3 business days before they close on the loan.

Closing Statement

An accounting of funds given to both buyer and seller before real estate is sold.

Cloud

An outstanding claim or encumbrance, that, if valid, would affect or impair the owner’s property title.

Co-Borrower

An additional person who assumes equal responsibility for repayment of a loan and is fully obligated under the terms of the loan. This person also has equal rights to the proceeds of the loan.

Co-Signer

A second person who signs your loan and assumes equal responsibility for payment of the loan but receives no benefit from the loan proceeds.

Coinsurance

A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Collateral

An asset, such as a car or a home, used for securing the repayment of a loan. The borrower risks losing the asset if the loan is not repaid.

Collection

The efforts used to bring a delinquent loan current and, if necessary, to file legal papers and notices to proceed with foreclosure.

Combination Loan

A combination loan pairs a conforming first mortgage with a home equity second mortgage for up to 80% of the property's value in a single application with 1 down payment. Combination loans may help you avoid the higher rates of a jumbo first mortgage. Combination loans are made up of 3 parts: 70% first mortgage, 10% home equity second mortgage and 20% down payment.

Combined Liens

The outstanding balance of all mortgages held on a property. Used to determine the total available equity when considering the appraised value of the property less total combined or outstanding liens.

Combined Loan-To-Value Ratio (CLTV)

The ratio between the unpaid principal amount of your first mortgage, plus your credit limit if you have a home equity line of credit, and the appraised value of your home. Expressed as a percentage.

Commitment

A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

Comparable Sales, Comps

similar home sale prices in the region used as a metric in the calculation of a home's appraised value.

Comparables (Comps)

Properties similar to the property under consideration for a mortgage that have approximately the same size, location and amenities and have recently been sold. Comparables help an appraiser determine the fair market value of a property.

Compound Interest

Interest paid on the principal balance and on the accrued and unpaid interest.

Conforming Loan

A loan for up to and including $417,000 in the continental United States (Alaska and Hawaii limits are higher).

Construction Loan

A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Contingency

A specified condition in a sales contract that must be satisfied before the home sale can occur. When buying a home, the 2 most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.

Conventional Loan

A home loan that is not insured or guaranteed by the federal government. A conventional loan can be for conforming or non-conforming loan amounts.

Conventional Mortgage

A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees, or private insurance. This is usually given at an 80% loan-to-value ratio.

Conversion

The right of a borrower to convert an adjustable or balloon loan into a fixed loan.

Convertibility Clause

A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate loan at specified times during the life of the loan.

Convertible ARM

An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate loan under specified conditions.

Convey

To transfer or deliver title to property from one to another by deed or contract. When an item becomes a part of the transfer of title, it is conveyed with the property.

Cost Of Funds Index (COFI)

An index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARMs).

Covenant

A promise in a mortgage or deed that requires or prevents certain uses of the property that, if violated, may result in loss or foreclosure of the property.

Credit Bureau

An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee. The 3 major credit bureaus are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.

Credit Limit

The maximum amount you can borrow under a line of credit.

Credit Loan

A credit loan is a mortgage that is issued on only the financial strength of a borrower, without great regard for collateral.

Credit Monitoring Service

A service that offers the benefit of early detection of unauthorized activity in order to limit the amount of financial damage that a person may suffer at the hands of an identity thief.

Credit Rating

Borrowers are rated by lenders according to the borrower’s credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower’s payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower’s credit, and different lenders may assign different grades to the same borrower.

Credit Report

A record of an individual’s debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk. The 3 major credit bureaus that provide credit reports are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.

Credit Risk

The likelihood that a borrower will pay their obligations as agreed. Borrowers who pay as agreed pose less credit risk to lenders.

Credit Score

A number that rates the quality of an individual’s credit. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan.

Credit-Loss Ratio

The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.

Credit-Related Expenses

The sum of foreclosed property expenses plus the provision for losses.

Credit-Related Losses

The sum of foreclosed property expenses plus charge-offs.

Creditor

A person or business from whom you borrow or to whom you owe money.

Creditworthiness

The likely ability of a borrower to repay debt.

Cumulative Interest

Total interest accrued.

Curtailment

A payment that reduces the principal balance of a loan.

Date Of Closing

date upon which all paperwork associated with a mortgage/property sales exchange is finalized.

Date of Possession

actual date upon which the buyer will move into a home or property; it is usually the closing date, but may be another agreed upon date as well.

Debt Consolidation

A single loan to pay off multiple debts, usually over a longer term. This is a popular use for a home equity line of credit.

Debt-To-Income Ratio (DTI)

The ratio of aggregate monthly debt to aggregate monthly income.

Deed

A document that legally transfers ownership of real estate from a seller to a buyer and delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate that is being used to secure the loan.

Deed Of Reconveyance

when a borrower has paid in full on a mortgage, the lender then awards the borrower a deed of reconveyance. This document becomes also a part of public record. Also known as reconveyance deed and recon.

Deed of Trust

Synonymous to a mortgage. A deed of trust or mortgage is obtained, depending on the state in which the borrower will reside.

Default

The failure to make payments on a loan.

Delinquency

Late or non-payments of principal, interest, taxes, or insurance.

Deposit

A lump sum given in advance as security. A deposit is always paid of a larger amount to be paid in the future. In mortgage and real estate terms, this is called the “earnest money deposit.”

Depreciation

In real estate and mortgage terms, the decline in the property value.

Discount

Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.

Discount Points

A term used in government-subsidized loans, such as FHA and VA loans. Refers to any “points” (one percent of the loan amount) paid in addition to the one percent loan origination fee.

Down Payment

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 5% and 20% of the sales price depending on many factors, including your loan, your lender and your credit history.

Draw

The process of obtaining an advance against your available line of credit.

Draw Period

The period during which a borrower can obtain advances (also called draws) from an available line of credit. At the end of the draw period, borrowers may be able to renew the credit line or be required to pay the outstanding balance in full or in monthly installments.

Due-On-Sale Provision

A provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.

Earnest Money Deposit

A deposit made by a potential home buyer to show that they are serious about purchasing the property.

Eminent Domain

The government right to take private property for public use depended on the payment of its fair market value.

Encumbrance

Any lien against a property or any restriction is used, such as an easement; a right or interest in a property held by one who is not the legal owner.

Equal Credit Opportunity Act (ECOA)

The act declaring the elimination of discrimination on the basis of age, sex, and race in finance.

Equity

The difference between the current market value of a property and the principal balance of all outstanding loans.

Escalator Clause

A clause in a loan providing for increases in payments or interest based on pre-determined schedules or on a specific economic index, such as the consumer price index.

Escrow

A third party agent that receives, holds, and/or disburses certain funds or documents upon the performance of certain conditions. For example, an earnest money deposit is put into escrow until the transaction is closed. Only then can the seller receive the deposit.

Escrow Analysis

An analysis performed by a lender each year to escrow accountholders to ensure that the correct amount of money is being collected to cover anticipated payments.

Escrow Fee

These costs cover the preparation and transmission of all home purchased-related documents and funds. Escrow fees range from several hundred to over a thousand dollars, based on the purchase price of your home. Not all states require funds to be put into escrow accounts for closing.

Escrow Or Impound Account

An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. The overage is put into escrow, which the lender uses to pay items like property taxes and homeowner’s insurance when they are due. This eliminates the actual number of payments that a homeowner has to worry about, but not the amount that has to actually be paid.

Esement

Giving other persons, other than the owner, access to a property.

Estate

The ownership interest an individual holds in real property. This is also the sum total of all the real property and personal property owned by an individual at time of death.

Eviction

The legal removal of real property occupants for unlawful actions carried out by those occupants.

Fair Credit Reporting Act

A law that protects consumers that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record.

Fair-Market-Value

the price that a piece of property will bear in the current market.

Fannie Mae (FNMA)

The Federal National Mortgage Association is a congressionally chartered, shareholder-owned company. This organization is the nation’s largest supplier of home mortgage funds.

Fannie Mae’s Community Home Buyer’s Program

A program that offers flexible underwriting guidelines to subsidize a low-to-moderate income family’s purchase of a home. The program usually decreases the total amount of cash needed to purchase a home.

Fee Simple

The best title that one can obtain; unqualified and conveys the highest bundle of rights.

Fees

Up-front costs associated with a loan.

FHA

Federal Housing Administration.

FHA Loan

A government-backed mortgage loan supported by the US FHA and the Department of Housing and Urban Development (HUD).

FICO®

An acronym for Fair Isaac Corporation, which develops the mathematical formulas used to produce credit scores for assessing credit risk. FICO scores fall between a low of 300 and a high of 850. The higher the FICO score, the lower credit risk a consumer presents.

Finance Charge

The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

Firm Commitment

A lender’s agreement to provide a loan to a specific borrower on a specific property.

First Mortgage

A mortgage that has priority over other mortgages.

First Time Buyer

a home loan borrower who has never taken out a mortgage before; often qualifies for various discounts and first-time buyer perks.

Fixed-Rate Mortgage

A mortgage where the interest rate does not change for the life of the loan.

Fixed-Rate Option (Fixed-Rate Loan Option)

An option available on certain home equity lines of credit allowing borrowers to fix the payments and interest rate on a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.

Float

Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower’s responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your lender regarding lock procedures.

Floating Rate

A loan rate for which the lender has not 'locked' or committed to lend at a particular interest rate. The floating interest rate and any discount points are not guaranteed. Your actual interest rate and discount points will be based on the market price available for your loan product at the time your interest rate is locked.

Flood Certification

in most real estate cases a lender will require a flood certification before making a loan on a home. In areas where a property falls in a flood zone, the borrower may be required to purchase standalone flood insurance before a mortgage and/or home loan is approved.

Forbearance

The postponement for a limited time of a portion or all the payments on a loan when a borrower is delinquent.

Foreclosure

A legal procedure in which real estate is sold by the lender to pay a defaulting borrower’s debt .

Form 1003

commonly used mortgage loan application developed by Fannie Mae. Sometimes called the Uniform Residential Loan Application.

Good Faith Estimate

An estimate of charges which a borrower is likely to incur in connection with a loan closing.

Government Loan

A type of mortgage insured by the FHA (Federal Housing Authority), VA (Veteran’s Administration), or RHS (Rural Housing Authority).

Government National Mortgage Association (Ginny Mae)

Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae.

Grace Period

A time allowed, usually 15 days, for making late payments without a penalty.

Grantee

The person to whom an interest in real property is conveyed.

Grantor

The person conveying an interest in real property.

Gross Monthly Income

The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Hard-Money Mortgage

Cash loan to a borrower.

Hazard Insurance

A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and certain other natural causes.

High-Risk Loan

a home loan extended to borrowers with poor credit history or that fall outside the conventional or conforming loan limits set by Fannie Mae and Freddie Mac. Sub-prime loan is an example of a high-risk loan.

Home Equity Conversion Mortgage (HECM)

Also known as the reverse annuity mortgage. This mortgage provides that instead of making payments to a lender, the lender makes payments to the individual. Older homeowners are able to convert home equity into cash this way, in the form of monthly payments. Borrowers don’t qualify on the basis of income, but on the value of his or her home. Such a loan does not have to be repaid until the borrower no longer occupies the property.

Home Equity Line of Credit (HELOC)

A mortgage loan in second position that allows a borrower to obtain cash drawn against home equity, up to a certain amount.

Home Inspection

A thorough assessment by a professional regarding the structural and mechanical condition of a property.

Home inspection Contingency Clause

a clause added to an offer letter that gives the buyer certain rights pending home inspection. A buyer may ask the seller to repair defects discovered during the home inspection or even request release from the offer to buy in light of a home inspection.

Home Loan

not a mortgage, but the actual amount of money a buyer owes the lender in the purchase of a home.

Home Price Index

financial and market tool that provides historical data on residential home prices in various regions.

Homeowner's Association

an association attached to a neighborhood, apartment, condo or town home complex that establishes certain rules of ownership. Common, but not exhaustive, responsibilities of a homeowner’s association includes collection of neighborhood dues for landscape maintenance or membership in recreation and entertainment facilities.

Homeowner’s Insurance

An insurance policy that combines personal liability insurance and hazard insurance for a home and its contents.

Homeowner’s Warranty

An insurance policy that is purchased by a buyer that covers certain repairs, should they be necessary over a certain period.

House Flipping

the purchase of a house or property at a reduced market rate for the purpose of a quick turnaround, a “flip,” and profit. Most house flippers must do some renovation or home fix-up in order to turn a profit on a home.

Housing Co-Op

a real estate corporation in which buyers own a share of real estate holdings and may reside in a co-op unit. Shareholders do not have mortgages, but pay on a cut of the shares and earn equity over the long term.

Housing Ratio

The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

HUD

Department of Housing and Urban Development; regulates Fannie Mae and Ginny Mae.

Hybrid Financing

The joining together of two forms of finance, such as combining a convertible loan with a participation loan, under which the lender has the right at loan maturity to convert the debt to a 50 percent ownership in the property.

Index

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Initial Interest Rate, Introductory

the interest rate at which an Adjustable Rate Mortgage, ARM, will begin. See Adjustable rate mortgage.

Interest

Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.

Interest Only

A term loan arrangement calling for payments of interest only, not to include any amount for principal.

Interest Rate

The percentage of an amount of money that’s paid for its use over a specified time period.

Interest Rate Swap

A transaction between two parties, in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time.

Intermediate-Term Mortgage

A mortgage loan with a stated maturity at the time of purchase that it is equal to or less than 20 years.

Investment Property

real estate bought for investment purposes as opposed to private residential. Often the property will be used for rental purposes, such as rental home, apartments or other spaces that give owners the opportunity to create profit and income over the long term.

Joint ownership

a type of property ownership in which two people share equally in a home and/or property; common for spouses.

Joint Tenancy

a type of property ownership in which two or more people share.

Judicial Foreclosure

A court procedure used by lenders to secure clear title to a property under a defaulted real estate loan.

Jumbo Loan

A loan for $417,001 or more in the continental United States (Alaska and Hawaii limits are higher). These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lease

A written agreement between a property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.

Lease Option

A rental agreement indicating a tenant’s option to purchase a property. Monthly payments consists not only of rent, but an overage that can be applied towards a down payment on an already established amount.

Leasehold Estate

An estate for a fixed length of time, established when a landlord gives up possession of real estate to a tenant, giving the tenant an equitable interest in the property, as defined by lease terms.

Lender

The bank, mortgage company, or mortgage broker offering the loan. Many institutions only “originate” loans and then resell the obligation to third parties.

Lender Fees

typically included in fees associated with closing costs, sometimes called processing fees; designed to cover costs incurred by lenders during the loan process.

Leverage

Using someone else’s money for the purchase of property.

Liability Insurance

Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party.

Lien

A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.

Life Of Loan Cap

The maximum interest rate that can be charged during the life of the loan. Also called Lifetime Cap. This value is often expressed as an increment above the initial loan rate.

Loan

The principal, or amount of total borrowed money, that is repaid with interest.

Loan - 401(K)/403(B)

A 401(k)/403(b) is an investment plan sponsored by employers that allow individuals to set aside tax-deferred income for retirement or emergency purposes. A 401(k) applies to private corporations, while a 403(b) applies to non-profit organizations.

A 401(k)/403(b) LOAN is a loan that can be taken against the amount accumulated in the 401(k)/403(b) plans, if so allowed by the plan administrator. Loans against these plans are an acceptable source of down payment for most types of other loans.

Loan Amount

The amount of money that you intend on borrowing from a financial institution for the purchase of your home. Subtracting the down payment from the purchase price of the home will provide you with the loan amount.

Loan Origination

What the process of obtaining new loans is called.

Loan Servicing

A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.

Loan-To-Value Ratio

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.

Lock Noun

The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your lender regarding lock procedures.

Lock Verb

The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender.

Lock-In Clause

Clause in a loan agreement that states that the borrower cannot repay a loan prior to a specified date.

Margin

The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate.

Maturity

The “Due Date” of a loan.

Merged Credit Report

A credit report that reports data from two or more major credit repositories.

Minimum Credit

This field on the table refers to the minimum credit rating a borrower must have in order to qualify for the listed loan.

Modification

Any change to the original terms of a mortgage.

Monthly Housing Expense

Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.

Mortgage

A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself. Some states use the term First Trust Deeds to refer to mortgage loans.

Mortgage Banker

A financial intermediary that originates or funds loans, collects payments, inspects the property, and forecloses if necessary. The main difference between a mortgage banker and a loan officer is a banker funds their own loans and sell them on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginny Mae.

Mortgage Broker

A mortgage company that originates loans, joining the borrower and lender for a real estate loan, earning a placement fee.

Mortgage Calculators

online financial tools available on many sites that allow potential buyers to plug in various personal financial figures to arrive at a mortgage value they can afford.

Mortgage Company

could be either a brokerage business or a direct lender.

Mortgage Constant

The factor used for rapid computation of the annual payment needed to amortize a loan.

Mortgage Insurance

Insurance that covers the lender against losses incurred as a result of a default on a home loan. This is usually required on all loans that have a loan-to-value higher than eighty percent. Mortgages that have an 80% LTV that do not require mortgage insurance have higher interest rates. The lenders then pay the mortgage insurance themselves. In addition, FHA loans and some first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

Mortgage Insurance Premium, MIP

a required fee added into a FHA loan, paid at closing.

Mortgage Originator

the actual company that lends the mortgage, the “originator.”

Mortgage-Backed Security

A fixed-income security which derives its cashflow from payments on a pool of underlying residential or commercial mortgages.

Mortgagee

The lender in a mortgage agreement.

Mortgagor

The borrower in a mortgage agreement.

Multidwelling Units

Properties that provide separate housing units for more than one family, although only a single mortgage is secured.

Negative Amortization

Essentially occurs when a borrower makes a minimum payment that may not cover the interest that is due. Loan balance then increases as a result.

Net Effective Income

Gross income less federal income tax.

No-Cost Loan

A no-cost loan can either be: 1) a loan that has no “lender costs” associated with it or, 2) a loan that also covers purchases or refinancing costs, which may be incurred in buying a home, obtaining and/or refinancing a loan, but are not directly charged by the lender. The interest rate on this type of loan is higher.

Note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Note Rate

The stated interest rate on a mortgage note.

Notice Of Incomplete Application, NOIA

a form sent to the buyer that indicates missing or incomplete loan application information. Buyer must provide all required information for the lender to complete the application process.

Offer

a verbal and written offer to buy a home for a certain dollar amount made from a buyer to a seller.

Origination Fee

The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.

Owner Financing

A property purchase that is partly or wholly financed by the seller.

Owner’s Title Policy

A policy protecting the buyer for the amount of the purchase price in the event of a future title dispute.

Package Mortgage

A mortgage that /includes equipment and appliances located on the premises in addition to the real property itself.

Partial Entitlement

Under VA loans, the amount of guarantee still available to an eligible veteran who has used his previous entitlement.

Partial Payment

A payment that is not sufficient enough to cover the month payment. During times of economic hardship, a borrower can make this request of the loan servicing collection department.

Participation Financing

A loan in which more than one mortgagee or more than one mortgagor harbors an interest. It can also be a loan in which the mortgagee receives partial ownership of the property being financed.

Payment Change Date

The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated payment mortgage (GPM). The payment change date occurs the month immediately after the interest rate adjustment date.

Periodic Payment Cap

The limit on the amount that payments can increase or decrease during any one adjustment period for an adjustable-rate mortgage (ARM) where the interest rate and principal fluctuate independently of one another.

Periodic Rate Cap

The limit on the amount that payments can increase or decrease during any one adjustment period in an ARM (adjustable rate mortgage), regardless of how high or low the index fluctuates.

Personal Property

Movable property that does not fit the definition of realty.

Piggyback Loan

a second mortgage 'piggybacked' onto a first mortgage and used in lieu of mortgage insurance. Cost effectiveness of a piggyback loan depends on current market factors.

PITI

PITI stands for principal, interest, taxes, and insurance. An “impounded” loan means that the monthly payment covers all of these, and perhaps mortgage insurance, if your loan so calls for it. If one does not have an “impounded” account, then the lender still calculates these amounts separately and uses it as part of determining one’s debt-to-income ratio.

PITI Reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The PITI (principal, interest, taxes, and insurance) must equal the amount that the borrower would have to pay for PITI for a determined number of months.

Planned Unit Development (PUD)

A type of ownership where individuals actually own the building or unit they reside in, but shared areas are owned jointly with the other members of the development or established association.

Portable Mortgage

a type of mortgage that may be carried by the borrower from one home purchase to the next, portable.

Power Of Attorney

a legal document that grants an individual the rights to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.

Pre-Approval

A term used to mean that a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved by an underwriter.

Pre-Foreclosure Sale

A procedure in which the borrower is allowed to sell his or her property for an amount less that what is owed on it to avoid foreclosure, fully satisfying the borrower’s debt.

Pre-Paids

Expenses such as taxes, insurance, and assessments, which are paid in advance of their due date, and on a prorated basis at closing.

Pre-Payment

Any amount paid so as to reduce the principal before the due date.

Pre-Qualification

After a loan officer has made inquiries about a borrower’s debt, income, and savings, he or she can write a written statement (pre-qualification) about the borrower’s chances for qualifying for a home loan.

Preferred Lender

a lender that is closely affiliated with a brokerage based on reputation and other industry factors. A mortgage lender that is recommended by a broker.

Prepayment Penalty

Lenders who impose prepayment penalties will charge borrowers a fee if they wish to repay part or all of their loan in advance of the regular schedule.

Primary Mortgage Market

direct lenders.

Prime Rate

Interest charged by financial institutions to top-rate borrowers.

Principal

The amount of debt, not counting interest, left on a loan.

Principal Balance

the amount currently owed on a home loan

Private Label Mortgage Outsourcing

a process in which a private bank or financial lender outsources mortgage products to another lender.

Private Mortgage Insurance (PMI)

Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.

Processing Fees

lender fees associated with creating the loan or mortgage, usually part of closing costs.

Promissory Note

A written promise to repay a specified amount over a specified period of time.

Property Address

the physical street address of a home or property, required for mortgage application.

Property Appraisal

a fair market value of property performed by a licensed appraiser; takes into account not only condition, but also the value of similar local properties or comparable sales.

Property Taxes

annual local taxes charged against the value of a homeowner's property.

Prorations

The allocation of charges and credits to the appropriate parties at a real estate sale and/or loan closing at a real-estate sale and/or loan closing.

Purchase Agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase-Money Mortgage

Mortgage given by a borrower to the seller as part of the purchase price of the property.

Purchase-Money Transaction

The acquisition of property through the payment of money or its equivalent.

Qualifying Ratio

The ratio of the borrower’s fixed monthly expenses to his gross monthly income. Ratios are expressed as two numbers like 28/36 where 28 would be the Front-End Ratio and 36 would be the Back-End Ratio.

The Front-End Ratio is the percentage of a borrower’s gross monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In the case of a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments were 28% or less than the borrower’s gross monthly income.

The Back-End Ratio is the percentage of a borrower’s gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt.

Please note that qualifying ratios are only a rough guideline in determining a potential borrower’s credit-worthiness. Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan. We urge all borrowers to discuss their particular situation with a qualified lender regardless of the outcome of any self-qualification exercise.

Quitclaim Deed

A deed that transfers, without warranty, whatever interest or title a grantor may have at the time the conveyance is made.

Rate Lock

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

Real Estate

A portion of the earth’s surface extending downward to the center to the earth and upward into space, including all things permanently attached thereto by nature or man and all legal rights therein.

Real Estate Agent

A person licensed to negotiate and transact the sale of real estate.

Real Estate Investment Trust

securities or mutual funds that invest directly in real estate.

Real Estate Settlement Procedures Act (RESPA)

An act requiring the revelation of all costs involved in a real estate closing to all participants.

Realtor

A real estate agent, broker, or associate that holds an active membership in a local real estate board that is affiliated with the National Association of Realtors.

Recast

To redesign an existing loan balance into a new loan for the same period or longer, to reduce payments and help a distressed borrower.

Reconciliation

Determining the final estimate of value by weighing the results of the various approaches in an appraisal.

Reconveyance Clause

The clause in a trust deed that gives the title back to the borrower when the loan is paid in full.

Recording

The formal filing of documents affecting a property’s title.

Refinancing

The process of paying off one loan with the proceeds from a new loan, using the same property as security.

Remaining Balance

The current balance owed on a home loan.

Remaining Term

The current amount of time remaining in the length of the loan.

Rent-Loss Insurance

Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty, resulting in the tenant being excused from paying rent.

Repayment Plan

An agreement between a lender and a delinquent borrower regarding mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making scheduled payments.

Residual Qualifying

Under a VA loan, using specified housing expenses to qualify for a loan payment.

Restrictions

Rules imposed on the use of real estate in an effort to preserve property values.

Reverse Mortgage

a type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments, frees up money they may use for other important costs or to make needed home repairs. Since reverse mortgages are typically structured as loans, these payments are not typically considered income.

Revolving Debt

A credit arrangement that allows a customer to borrow against a pre-approved line of credit used to purchase goods and services. The borrower is responsible for the actual amount borrowed plus any interest due.

Right-Of-First Refusal

A provision that states that a property to be first offered to a specific person before it can be offered for sale or lease to other parties.

Rollover Loan

A loan that /includes a call date earlier than its normal amortization period.

Rule Of 78

Calculates proportionate amount of interest due on a loan being paid in full before its maturity.

Sale-Buyback

A financing arrangement in which an investor buys property from a developer and immediately sells it back under a long-term sales agreement, wherein the investor retains legal title.

Sale-Leaseback

A financing arrangement whereby an investor purchases real estate owned and used by a business corporation, then leases the property back to the business.

Sales Contract

a real estate sales agreement is a formal written contract made between a homebuyer and seller. The document includes property address, condition, purchase price, inspections, date of closing, date of possession and more.

Second Mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Secondary Mortgage Market

A market where mortgage originators may sell them, freeing up funds for continued lending and distributes mortgage funds nationally from money-rich to money poor areas.

Secured Loan

A loan that is backed by collateral.

Security

Something given, deposited, or pledged to make secure the fulfillment of an obligation, usually the repayment of a debt.

Seller Carry-Back

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

Seller’s Agent

a real estate agent that works on behalf of the home seller.

Senior Loan

A real estate loan in first priority position.

Servicer

An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Settlement Costs

See Closing Costs.

Short Sale

useful tool for lenders and homeowners when foreclosure could be a worst-case scenario. In a real estate short-sale lenders give homeowners permission to discount the home value (an outstanding loan balance) to effect a quick sale, thereby averting foreclosure.

Sinking Fund

Monies deposited in advance in anticipation of satisfying a debt in the future.

Speculative Home Market

one in which investors snatch up homes for quick re-sale hoping to cash in on improving markets; considered risky by some.

Stop Date

Date on a term loan when the balloon payment is due.

Sub-prime Loan

a high-risk loan packaged with non-conforming loan limits and interest rates that make it possible for homebuyers with poor credit to qualify for a mortgage.

Subordinate Financing

Any mortgage or other lien that has a priority lower than that of the first mortgage, or senior loan.

Survey

A drawing or map the shows the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Sweat Equity

Increase in property value due to improvement by owners.

Takeout Mortgage

A permanent mortgage, obtained by pre-arrangement between a builder and a financial institution, to repay the interim mortgagee at the completion of construction.

Tax Lien

A claim against real estate for the amount of its unpaid taxes.

Tenancy In Common

one or more persons may possess the property title, but ownership may be declared in various percentages.

Third-Party Origination

A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Title

A legal document showing 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

Title Insurance policies typically insure a homebuyer against any title-search errors or mistakes, and against loss due to disputes over property ownership. Title Insurance can additionally offer protection to the lender under similar circumstances. The cost of title insurance is usually a set value per thousand of dollars of the total loan amount.

Title Search

A check of the title records to make sure that the seller is the actual legal owner of the property, and that there are no liens or other claims outstanding.

Total Debt Ratio

Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio.

Transfer Of Ownership

The means by which the ownership of a property changes hands. Examples of such include the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchases, and any exchange of possession of the property under a land sales contract or any other land trust device.

Transfer Tax

State or local tax payable when the title passes from one owner to another.

Truth in Lending disclosure

a document that all lenders are required to provide when a borrower applies for a home loan. The document discloses interest rates, the amount to be loaned, plus the final cost of the loan upon maturity.

Truth-in-Lending Law

Provision that requires lenders to reveal the actual costs of borrowing.

Two-Step Mortgage

A loan where the interest rate is fixed for the first seven years and then is adjusted one time for the balance of the loan period.

Underwriter

the company or service that evaluates a borrower’s creditworthiness prior to loan and mortgage approval.

VA Loan

A government-backed mortgage loan supported by the US Veterans Administration.

Variable Rate Mortgage

See Adjustable Rate Mortgage.

Vested

Means that one has a right to use a portion of a fund, such as an individual’s retirement fund.

Warranty Deed

indicates no past liens or disputes against the property; the holder of the property deed has the right to sell it to another.

Zero Percent Financing

A loan with no interest in the contract. The IRS imputes 10 percent for both borrower and lender.

Zoning

The right of a community, under its police power, to dictate the use of property within its boundaries.