A  

Acceleration Clause  
A common provision of a mortgage or note that gives the lender the right to demand that the entire outstanding balance is due if a monthly payment is missed.  
   
Adjustable Rate Mortgage Loan (ARM) 
A loan with an interest rate that is adjusted periodically based on changes in a specified index. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. An interest rate cap limits the amount the interest rate can change. 
  
Adjustment Interval or Adjustment Period 
The time between changes in the interest rate or monthly payment on an ARM loan. 
  
Agreement of Sale 
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold. 
  
Amortization 
Repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time. 
  
Amortization Schedule 
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made. 
  
Annual Percentage Rate (APR) 
The cost of a mortgage expressed as a yearly rate. The annual percentage rate is usually not the same as the interest rate. It is a percentage that results from an equation considering, among other things, the amount financed, mortgage insurance, the finance charges, and the term of the loan. 
  
Application 
An initial statement of personal and financial information required to apply for a loan. 
  
Application Fee 
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges. 
  
Appraisal 
A written estimate of a property's current market value completed by an impartial party with knowledge of real estate markets. 
  
Appraisal Fee 
A fee charged by a licensed, certified appraiser to give an opinion of market value as of a specific date. 
  
APR 
See Annual Percentage Rate. 
  
ARM 
See Adjustable Rate Mortgage Loans. 
  
Assessment 
The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment. 
  
Assignment 
The transfer of a mortgage from one person (the assignor) to another (the assignee). 
   
Assumption 
A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. 

B  

Balloon Mortgage 
Balloon mortgage loans are short-term fixed-rate loans with fixed monthly payments for a set number of years followed by one large final balloon payment ("the balloon") for all of the remainder of the principal. Typically, the balloon payment may be due at the end of 5, 7, or 10 years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed. 
  
Bankruptcy 
A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts. 
  
Bequest 
A gift of personal property by will. 
   
Blanket Mortgage 
A mortgage that covers more than one parcel of real estate. 
  
Bona Fide 
In good faith. 
 
Borrower (Mortgagor) 
An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan. 
  
Broker 
An individual who brings buyers and sellers together and assists in negotiating contracts for a client. 
  
Buy-Down Mortgage 
A mortgage loan with a below-market rate for a period of time.  
   
Buyer's Market 
Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions. 

C  

Call Option 
A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender. 
   
Caps (interest) 
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index. 
  
Caps (payment) 
Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, these consumer safeguards may cause negative amortization. 
  
Cash Out 
Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house.   The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. 
 
For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out.  Cash-out loans may not be available for all types of property. 
  
Cashier's Check (or Bank Check) 
A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's. 
   
Ceiling 
The maximum allowable interest rate of an adjustable rate mortgage. 
  
Certificate of Title 
Written opinion, given by an attorney or title company, that the title to real estate is legally held by the current owner. 
  
Chain of Title 
The chronological order of transfer of title to a property from the original owner to the present owner. 
   
Closing (or Settlement) 
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction. 
  
Closing Costs 
Costs for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, and surveying fees. 
   
COFI 
See Cost of Funds Index. 
  
Collateral 
Assets (such as your home) pledged as security for a debt. 
  
Commission 
Money paid to a real estate agent or broker for negotiating a real estate or loan transaction. 
  
Commitment 
A promise to lend and a statement by the lender of the terms and conditions under which a loan is made. 
  
Comparables 
An abbreviation for "comparable properties;" used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property. 
  
Condominium 
A form of property ownership in which the homeowner holds title to an individual dwelling unit and an undivided interest in common areas and facilities of a multi-unit project. 
  
Conforming Loan 
A mortgage loan which meets all requirements to be eligible for purchase by federal agencies such as Fannie Mae and Freddie Mac. The maximum conforming loan amount is $227,150 for a one-unit property. 
   
Construction Loan 
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses. 
  
Contingency 
A condition which must be met before a contract is legally binding. 
  
Contract of Sale 
The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale. 
  
Conventional Loan 
Loans that are not made under any government housing program; they are not subject to the restrictions of government housing programs, such as loan size limits. 
  
Conversion Clause 
A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, at a specific time after origination. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature. 
  
Convertible ARMs 
A type of ARM loan with the option to convert to a fixed-rate loan under certain conditions. 
  
Cost of Funds Index (COFI) 
An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District. 
   
Credit Report 
A report detailing the credit history of a prospective borrower that's used to help determine borrower creditworthiness.back to top

D  

Deed 
Legal document by which title to real property is transferred from one owner to another. 
  
Deed-in-Lieu 
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance." 
  
Deed of Trust 
A legal document used in some states instead of a mortgage.  It conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full. 
 
Default 
Failure to meet legal obligations in a contract, including failure to make payments on a loan. 
   
Delinquency 
Failure to make payments when they are due. 
  
Discount Points (or Points) 
Points are an up-front fee paid to the lender at the time that you get your loan. One point equals one percent of your total loan amount. Usually, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are typically paid in cash at closing. 
   
Down Payment 
The part of your home's purchase price you need to pay up front in cash. 
  
Due-on-Sale Clause 
Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property. 

E  

Earnest Money 
Deposit made by a buyer towards the down payment to show that he or she is serious about buying the house. 
  
ECOA 
See Equal Credit Opportunity Act. 
  
Encumbrance 
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions. 
  
Equal Credit Opportunity Act (ECOA) 
Federal law requiring lenders to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. 
  
Equity 
The difference between the current market value of a property and the total debt obligations against it. On a new mortgage loan, the down payment represents the equity in the property. 
  
Escrow 
A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds. 
 
Escrow Account 
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account. 
  
Escrow Analysis 
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due. 

F  

Fair Credit Reporting Act 
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record. 
  
FDIC 
See Federal Deposit Insurance Corporation. 
  
Federal Deposit Insurance Corporation (FDIC) 
Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system. 
   
Freddie Mac or Federal Home Loan Mortgage Corporation (FHLMC) 
This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending. 
  
Federal Housing Administration (FHA) 
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans. 
  
Fannie Mae or Federal National Mortgage Association (FNMA) 
This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending. 
   
Fee Simple 
Absolute ownership of real property. 
  
FHA 
See Federal Housing Administration. 
  
FHA Loans 
Fixed- or adjustable-rate loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers. 
   
FHLMC 
See Federal Home Loan Mortgage Corporation. 
  
First Mortgage 
A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages. 
  
Fixed Rate 
An interest rate which is fixed for the term of the loan. 
  
Fixed-Rate Loans 
Fixed-rate loans have interest rates that do not change over the life of the loan. As a result, monthly payments for principal and interest are also fixed for the life of the loan. Fixed-rate loans typically have 15-year or 30-year terms. With a fixed-rate loan, you will have predictable monthly mortgage payments for as long as you have the loan. 
  
Flood Insurance 
Insurance that compensates for physical damage to a property by flood.  It is required for properties located in federally designated flood zones. 
  
FNMA 
See Federal National Mortgage Association. 
  
Forbearance 
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent. 
  
Foreclosure (or Repossession) 
Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default. 
  
Freddie Mac 
A common nickname for the Federal Home Loan Mortgage Corporation. 

G  

Good Faith Estimate 
Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application. 
  
Grace Period 
Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note. 
  
Gross Income 
Total income before taxes or expenses are deducted. 

H  

Hazard Insurance 
Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer. 
   
Home Inspection 
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal. 
  
Housing and Urban Development 
See HUD. 
   
HUD 
Housing and Urban Development. A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration. 
  
HUD-1 Uniform Settlement Statement 
A standard form which itemizes the closing costs associated with purchasing a home or refinancing a loan. 

I  

Impound Account 
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses impound account funds on behalf of the borrower when they become due. (Also known as Escrow Account.) 
  
Index 
A published rate used by lenders that serves as the basis for determining interest rate changes on ARM loans. 
  
Initial Rate 
The rate charged during the first interval of an ARM loan. 
  
Insurance Binder 
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date. 
  
Interest 
Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed. 
  
Interest Rate 
The annual rate of interest on the loan. 
  
Interest Rate Cap 
Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index. 
  
Investment Property 
A property that is not occupied by the owner. 

J  

Joint Liability 
Liability shared among two or more people, each of whom is liable for the full debt. 
  
Joint Tenancy 
A form of ownership of property giving each person equal interest in the property, including rights of survivorship. 
  
Judgment 
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor. 
  
Jumbo Loan 
A mortgage larger than the limit set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. 
  
Junior Mortgage 
A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first. 

L  

Late Charge 
Penalty paid by a borrower when a payment is made after the due date. 
   
Lender 
The bank, mortgage company, or mortgage broker offering the loan. 
  
LIBOR (London Interbank Offered Rate) 
The interest rate charged among banks in the foreign market for short-term loans to one another. A common index for ARM loans. 
  
Lien 
A legal claim by one person on the property of another for security for payment of a debt. 
   
Loan Application 
An initial statement of personal and financial information required to apply for a loan. 
  
Loan Application Fee 
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges. 
  
Loan Origination Fee 
Fee charged by a lender to cover administrative costs of processing a loan. 
   
Loan-to-Value Ratio (LTV) 
The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property.  For example, a $100,000 home with an $80,000 mortgage has an LTV of 80%. 
  
Lock or Lock-In 
A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time. 

M  

Margin 
A specified percentage that is added to the index to determine your new interest rate at the time of adjustment for ARM loans. 
   
Mortgage 
A legal document by which real property is pledged as security for the repayment of a loan. 
  
Mortgage Banker 
An individual or company that originates and/or services mortgage loans. 
  
Mortgage Broker 
An individual or company that arranges financing for borrowers. 
  
Mortgage Insurance 
Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. 
  
Mortgage Loan 
A loan for which real estate serves as collateral to provide for repayment in case of default. 
  
Mortgage Note 
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument. 
  
Mortgagee 
The lender in a mortgage loan transaction. 
  
Mortgagor 
The borrower in a mortgage loan transaction. 

N  

Negative Amortization 
A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan. 
  
Note 
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument. 
  
Notice of Default 
Written notice to a borrower that a default has occurred and that legal action may be taken. 

O  

Original Principal Balance 
The total amount of principal owed on a mortgage before any payments are made. 
  
Origination Fee 
Fee charged by a lender to cover administrative costs of processing a loan. 

P  

Payment Cap 
Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization. 
  
Per Diem Interest 
Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.) 
  
PITI 
Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment. 
  
Points (or Discount Points) 
Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Usually, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are typically paid in cash at closing. 
  
Power of Attorney 
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time. 
  
Prepaid Expenses 
Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing. 
  
Prepaid Interest 
Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date. 
  
Prepayment 
Full or partial repayment of the principal before the contractual due date. 
  
Prepayment Penalty 
Fee charged by a lender for a loan paid off in advance of the contractual due date. 
  
Pre-qualification 
The process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application. 
  
Principal 
The amount of debt, not counting interest, left on a loan. 
  
Private Mortgage Insurance (PMI) 
Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. 
  
Purchase Agreement 
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold. 

Q  

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

R  

Real Estate Settlement Procedures Act (RESPA) 
A federal law that requires lenders to provide mortgage loan borrowers with information of known or estimated settlement costs.  
  
Real Property 
Land and any improvements permanently affixed to it, such as buildings. 
  
Recording 
The act of entering documents concerning title to a property into the public records. 
  
Recording Fee 
Money paid to an agent for entering the sale of a property into the public records. 
  
Refinancing 
The process of paying off one loan with the proceeds from a new loan secured by the same property. 
  
Remaining Balance 
The amount of principal that has not yet been repaid. See principal balance. 
  
Remaining Term 
The original amortization term minus the number of payments that have been applied. 
   
Repayment Plan 
An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions." 
  
RESPA 
See Real Estate Settlement Procedures Act. 
   
Right to Rescission 
Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage. 

S  

Sales Agreement 
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold. 
   
Second Mortgage 
An additional mortgage placed on a property that has rights that are subordinate to the first mortgage. 
  
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 (or Closing) 
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction. 
  
Settlement Costs 
Also known as closing costs, these costs are for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees. 
  
Settlement Cost (HUD guide) 
HUD-published booklet that provides an overview of the lending process, and that is given to consumers after completing loan application. 
  
Subordinate Financing 
Any mortgage or other lien that has a priority that is lower than that of the first mortgage. 
  
Survey 
A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements, and relationship to surrounding tracts. 
  
Sweat Equity 
Value added to a property in the form of labor or services of the owner rather than cash. 

T  

Tax Impound 
Money paid to and held by a lender for annual tax payments. 
  
Tax Lien 
Claim against a property for unpaid taxes. 
  
Tax Sale 
Public sale of property by a government authority as a result of non-payment of taxes. 
  
Term 
The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due. 
  
Title 
Document which gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property. 
  
Title Company 
A company that insures title to property. 
  
Title Insurance 
Insurance which protects the lender (lender's policy) or the buyer (owner's policy) against loss due to disputes over ownership of a property. 
  
Title Search 
Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property. 
  
Transfer Tax 
Tax paid when title passes from one owner to another. 
  
Truth-in-Lending Act 
Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right to rescission period. 

U  

Underwriting 
In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan. 

V  

VA Loans 
Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. 
  
Variable Rate Mortgage 
See Adjustable Rate Mortgage. 
  
Variable Rate 
Interest rate that changes periodically in relation to an index. 
  
Verification of Deposit (VOD) 
Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history. 
  
Verification of Employment (VOE) 
Document signed by the borrower's employer verifying the borrower's position and salary. 

W  

Waiver 
Voluntary relinquishment or surrender of some right or privilege. 
  
Walk-through 
A final inspection of a home to check for problems that may need to be corrected before closing. 

Z  

Zoning Ordinances (or Zoning Regulations) 
Local law establishing building codes and usage regulations for properties in a specified area.

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