|Abstract of Title – A summary of recorded transactions concerning
Acceleration Clause - Provision in a mortgage that gives the lender the right to require immediate repayment of the loan balance if regular mortgage payments are not made or if other clauses in the mortgage are breached.
Accrued Interest - Interest earned but not yet paid.
Adjustable-Rate Mortgage (ARM) - A mortgage in which the interest rate can be changed or adjusted by the lender based on a preselected rate index. ). Payments can be low if interest rates are low and will increase if rates rise.
Adjustment Interval – The time between changes in the interest rate on an ARM
Amortization - A monthly repayment schedule calculated to pay off a debt by a set date with specific amounts allocated to the loan’s interest and principal.
Annual Percentage Rate (APR) - The annual percentage rate is a measure of the cost of credit on a yearly basis. APR takes into account interest, points, origination fees, and mortgage insurance, so it will be slightly higher than the interest rate on the loan.
Appraisal - A written estimate of a property's current market value prepared by a skilled and licensed professional appraiser. The appraisal is based on the condition of the property and neighborhood as well as recent sales for similar properties. Typically the lender selects the appraiser, but the borrower pays the appraisal fee.
Approval - Conditional loan approval based on information provided to the lender and subject to the verification and/or receipt of additional information. Once all closing conditions and lender requirements are satisfied, the loan will receive final approval.
ARM - See Adjustable Rate Mortgage
Assessment - A local tax levied against properties for civil improvements such as road or sidewalk repair, new sewer lines, or street lights.
Balloon Mortgage - A fixed-rate loan or debt that is not fully amortized. The borrower pays low monthly payments and then, at the end of the loan term (which can be 5, 7, 10 or 15 years) all of the outstanding debt is due in a large lump sum or “balloon” payment.
Basis Point - A unit of measure: 1/100th of one percent. For example, the difference between a 9.0% loan and a 9.5% loan is 50 basis points.
Bimonthly mortgage - A mortgage on which the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th.
Biweekly mortgage - A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.
Blanket Mortgage - A mortgage covering at least two pieces of real estate, both of which serve as collateral for the loan.
Borrower (Mortgagor) - An individual who applies for and receives a loan in the form of a mortgage.
Bridge loan (Swing loan) – A short-term loan, usually from a bank, that bridges the period between the closing date of a home purchase and the closing date of a home sale.
Buyer's Broker – An hired by a buyer to locate a property for purchase and to represent the buyer in negotiations with the seller's broker for the best possible deal for the buyer.
Buyer's Market - Market conditions that favor buyers. With more sellers than buyers in the market, buyers have ample choice of properties and can negotiate lower prices.
Caps – Provisions on adjustable rate mortgages that limit how much the interest rate or mortgage payments may increase or decrease in an adjustment period or over the life of the loan.
Cash Out Refinance - A refinance for more than the balance of the original mortgage, so that money is taken out of the equity built up in the house.
Cashier's 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.
Chain of Title - The chronological order of conveyance of a property from the original owner to the present owner.
Clear Title - A marketable title, free of clouds and disputes.
Closing (or Settlement) - Meeting between the buyer, seller, and lender or their agents at which property and funds legally change hands.
Closing Costs - Fees incurred in a real estate or mortgage transaction and paid by borrower and/or seller during the closing of the mortgage loan. These typically include a loan origination fee, discount points, attorney's fees, title insurance, appraisal, survey, and any items that must be prepaid, such as taxes and insurance escrow payments. The cost of closing is usually about 3 percent to 6 percent of the mortgage amount.
Closing Statement (also known as HUD-1) – The final statement of costs incurred to close on a loan or to purchase a home.
Collateral - Property that you pledge as a guarantee that you will repay a debt. If you don't repay the debt, the lender can take your collateral and sell it to get its money back. With a home equity loan or line of credit, you pledge your home as collateral
Combined Loan-to-Value (CLTV) – The unpaid principal balances of all the mortgages on a property divided by the property’s appraised value.
Commission – Fee charged by an agent or broker for negotiating a real estate or loan transaction. Amount is generally a percentage of the property or loan.
Commitment - A formal offer by a lender to make a loan under certain terms or conditions to a borrower.
Conforming Loan - A loan eligible for purchase by the two major federal agencies that buy mortgages, Fannie Mae and Freddie Mac (up to $417,000 for a one-unit property).
Construction Loan - A short-term interim loan to fund the construction of buildings or homes, which usually advances the money to the builder as work progresses. After completion a permanent loan is used to pay off the construction loan.
Contingency - A condition that must be satisfied before a contract is legally binding-before a sale can close.
Contract of Sale - The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.
Conventional Loan - A mortgage not insured by the FHA or guaranteed by the VA.
Conversion Clause - A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.
Convertible ARMs – Ajustable rate mortgages with the option of conversion to a fixed loan during a given time period.
Credit Report – A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s credit worthiness. Also see FICO
Credit Risk – The possibility that the borrower may default on financial obligations to the lender.
Deed – The legal document transferring title to a property from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.
Deed of Trust - Document used in some states in place of a mortgage. In such an arrangement, the borrower transfers legal title to a trustee who holds the property in trust as security for the repayment of the debt.
Default - Failure to meet mortgage payments on a timely basis or to comply with other mortgage requirements. A mortgage is generally considered to be in default when a payment is 30 days past due.
Deferred Interest - Interest added to the balance of a loan when monthly payments are not sufficient to cover it. (See Negative Amortization.)
Delinquency - Failure to make payments on time.
Discount Points (or Points) - Money paid to a lender at closing in exchange for lower interest rates. Each point is equal to 1% of the loan amount.
Down Payment – Money paid for a house from one's own funds at closing. The down payment will be in the amount of the difference between the purchase price and mortgage amount.
Due-on-Sale Clause - Provision in a mortgage or deed of trust allowing the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
Encumbrance - A legal right or interest in a property that affects title and lessens the property value. Encumbrances can take the form of claims, liens, unpaid taxes, and so on. These will usually have to be taken care of before a buyer will want to purchase the property
Equity - The percentage of property value held by the owner; the difference between how much a home is worth and how much the homeowner owes on the mortgage (or mortgages, if there are more than one).
Equity Loan - A loan based on the borrower's equity in his or her home.
Escrow – An item of value, money or documents deposited with a neutral third party (escrow agent) to be delivered upon the fulfillment of a condition, such as funds to be disbursed upon the closing of a property sale The escrow agent can be a title company or an attorney depending on the state regulations.
Escrow Account - Account held by a lender containing funds collected as part of mortgage payments for annual expenses such as taxes and insurance, so that the homeowner does not have to collect a large sum when these fall due.
FICO – The numerical credit score that credit bureaus give to you based on the amount of debt you have and whether you pay your bills on time. FICO is named after Fair Issac Corp, the company that pioneered credit scoring. Scores average between 300 and 850, the higher the better.
Fannie Mae and Freddie Mac - Fannie Mae refers to the federally chartered company, the Federal National Mortgage Association, which is the nation’s largest supplier of home mortgage funds.Freddie Mac refers to the Federal Home Loan Mortgage Corporation. Both are organizations created by Congress to buy loans from lending institutions.
Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac) - Quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA) - Government agency, division of the Department of Housing and Urban Development, that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
Federal National Mortgage Association (FNMA, or Fannie Mae) - Corporation created by Congress that buys and sells residential mortgages, providing funds for one in seven mortgages.
First Mortgage - A mortgage that 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 that is fixed for the term of the loan.
Fixed-Rate Mortgage - A mortgage whose interest rate does not change for the life of the loan. Payments are also fixed.
Float – Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing.
Float-down – A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period. Also called a cap.
Flood Insurance -A form of hazard insurance required by lenders to cover properties in flood zones.
Floor - The minimum rate of interest payable on an adjustable-rate mortgage.
Foreclosure (or Repossession) - Legal process by which the lender forces the sale of a property because the borrower has not met the mortgage terms.
Ginnie Mae or GNMA - See Government National Mortgage Association.
Good Faith Estimate - Written estimate of costs the borrower will have to pay at closing, provided by a lender within three days of a loan application.
Government National Mortgage Association (GNMA, or Ginnie Mae) - A federal agency that guarantees mortgage securities that are issued against pools of FHA and VA mortgage loans.
Graduated Payment Mortgage (GPM) - Mortgage in which initial low payments (with potential negative amortization) increase regularly for several years and then level off.
Grace Period – The period of time after the payment date during which the borrower can make a loan payment withhout incurring a late penalty.
Gross Income - Total income before taxes or expenses are deducted.
HELOC – Stands for Home Equity Line of Credit. Home equity lines of credit have revolving balances and work like a credit card.
Home Equity Loan - A loan secured by the equity in your home. These are sought for a variety of purposes, including home improvements, major purchases or expenses, and debt consolidation. Interest paid is usually tax-deductible.
Homeowners Warranty - A type of insurance that covers repairs to specified parts of a house for a specific period of time.
Housing and Urban Development (HUD) - A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.
Housing Expense-to-Income Ratio - The ratio, expressed as a percentage, that results when a borrower's housing expenses are divided by his/her gross monthly income.
HUD - See Housing and Urban Development.
Impound (or Reserves) - Portion of a borrower's monthly payments held by the lender to pay for taxes, insurance, and other items as they become due.
Impound Account - Savings account for accumulating that portion of a borrowers monthly payments designated for future payments of taxes and insurance. (Required by certain lenders or with certain types of financing.)
Index - A published rate used by lenders to calculate interest adjustments on ARMs (Index + Margin = Interest Rate). Some indexes are more volatile than others.
Initial Rate - The rate charged during the first interval of an ARM.
Interest Rate – The periodic charge paid for borrowing money, calculated as a percentage of the amount borrowed.
Interest Rate Cap - A safeguard built into ARMs to prevent drastic changes in interest rates.
Interest Rate Change Date - Those dates upon which the rate of interest is subject to change. Initial change date and subsequent change dates may feature different terms.
Joint Liability - Liability shared among two or more people, each of whom is liable for the full debt.
Joint Tenancy - The ownership of property by two or more persons with the survivor taking the share of the deceased.
Jumbo Loan - A mortgage larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, currently more than $417,000. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Junior Mortgage - A mortgage subordinate or secondary to another mortgage. In the case of a foreclosure a senior mortgage will be paid first.
Loan Application Fee - Fee paid by prospective buyer to lender when applying for a mortgage.
Loan Origination Fee - Fee charged by a lender for processing a mortgage, usually expressed as a percentage of the loan (or points), which pays for the work in evaluating and processing the loan.
Loan Servicing (or Loan Administration) - The collection of mortgage payments from borrowers and related responsibilities (such as handling escrows for property tax and insurance, foreclosing on defaulted loans and remitting payments to investors).
Loan to Value Ratio (LTV) - The ratio between what you owe on your house and what it's worth. If your house is worth $200,000 and you still owe $150,000, your loan-to-value ratio is 75 percent, because $150,000 is 75 percent of $200,000.
Lock or Lock In – A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set pierod of time.
Margin - A pre-determined “spread” or amount which, when added to the Index, establishes a new rate of interest.
Market Rate -The average rate charged by lenders for conventional, fixed-rate loans.
Maturity – The period until the last payment is due. This is usually but not always the term, which is the period used to calculate the mortgage payment.
Monthly Housing Expense -Total monthly expense of principal, interest, taxes and insurance.
Mortgage - A loan or lien on a property/house that has to be paid over a set period of time.
Mortgagee - The lender in a mortgage loan transaction.
Mortgage Insurance - Insurance purchased by a buyer to cover the lender's risk when a down payment is less than 20 percent of the purchase price.
MIP (Mortgage Insurance Premium) - Insurance purchased by borrower to insure against default on government (FHA or VA) loans.
Mortgage Loan - A loan for which real estate serves as collateral to provide for repayment in case of default.
Mortgagor -The borrower in a mortgage loan transaction.
Negative Amortization – (Sometimes called deferred interest) A rise in the loan balance when the mortgage payment is restricted by a payment cap and is less than the interest due. Negative amortization arises most frequently on ARMs. Unpaid deferred interest is added to the loan balance, which means that the borrower ends up owing more than the original amount of the loan.
Negative Points – Points paid by a lender for a loan with a rate avbove the rate on a zero point loan. Sometimes called rebates because they are used to reduce a borrower’s settlement costs.
No Asset Loan – A documentation requirement where the applicant’s assets are not disclosed.
No Income Loan – A documentation requirement where the applicant’s income is not disclosed.
Non-Assumption Clause - A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.
Non-Conforming Loan - Loan that does not comply with the purchasing guidelines of the two federal agencies, Fannie Mae or Freddie Mac, because it is too large or for other reasons such as poor credit or inadequate documentation.
Note - Legal document stating the terms of a debt and a promise to repay it.
Origination Fee - Fee charged by a lender for processing a mortgage, usually expressed as a percentage of the loan (or points), which pays for the work in evaluating and processing the loan.
Owner Financing - A purchase in which the seller provides all or part of the financing.
Payment Cap – Pre-determined limit on the amount by which a borrower's ARM payments may increase, regardless of rise in interest rates; may result in negative amortization.
Payment Change Date -Those dates upon which the payment amount is subject to change. Products featuring “negative amortization” typically will include a payment change date which differs from the interest rate change date in frequency.
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 of the following month.)
Periodic Interest Cap - Interest “Caps” that work to restrict the degree to which adjustable rate mortgages may increase and/or decrease at pre-determined change dates.
Permanent Loan - A long-term mortgage of 10 years or more.
PITI - Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment; also called monthly housing expenses.
Pledged Account Mortgage (PAM) - Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
Points (or Discount Points) - Interest prepaid to the lender at closing. Each point is equal to 1% of the loan amount. Paying more points at closing generally reduces the interest rate (and therefore monthly payments) on a loan.
Pre-approval – A commitment by a lender to make a mortgage loan to a specified borrower, prior to the identification of a particular property and designed to make it easier to shop for a house. Unlike prequalification, the lender checks the applican’ts credit.
Prepaid Expenses - Taxes, insurance, and assessments paid in advance of their due dates, including at closing.
Prepaid Interest - Charged to a borrower at closing to cover interest on the loan between closing and the first payment.
Prepayment - Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan.
Prepayment Penalty - Fee charged by a lender for early payment of debt.
Pre-payment Penalty - Many ARM loans contain a provision against pre-payment without penalty. Terms of pre-payment penalty clauses vary from product to product, investor to investor, and state to state. Many states and even local municipalities have, or are contemplating, enacting legislation against pre-payment penalties associated with “high cost” loans.
Prequalification - The process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan.
Primary Mortgage Market - Includes banks, savings and loans, credit unions, and mortgage bankers who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to lenders such as FNMA in the secondary mortgage market.
Prime Rate - Lowest commercial interest rate charged by a bank on short-term loans to its most credit-worthy customers.
Principal - The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI or MI) - Insurance a buyer is generally required to purchase when a down payment is less than 20% of the purchase price. PMI is designed to protect the lender against default. Federal law requires PMI be cancelled when you have paid off a certain percentage of your mortgage or your home’s property value has increased to a certain percentage above the value of the mortgage.
Profit and Loss Statement - Financial statement showing sales, expenses, and profits over a period of time.
Property Tax - A government tax based on the market value of a property.
Purchase Agreement - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
Qualifying Rate – The interest rate used in calculating the initial mortgage payment for purposes of qualifying a borrower. This rate may or may not be the initial or start rate on the loan.
Qualifying Ratio – Requirements stipulated by the lender that the ratio of housing expense to borrower income or housing expense plus other debt service to borrower income cannot exceed specified maximums.
Real Property - Land and everything that is permanently affixed to it.
Rescission - The right of refinancing borrowers under the Truth in Lending Act to cancel the deal at no cost to themselves without three days of closing.
Reclamation - The right of the person with title to a property to recover it from the debtor in case of a bankruptcy.
Reconveyance -The transfer of property back to the owner when a mortgage is fully repaid.
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 – Paying off an old loan while simultaneously taking on a new one secured by the same property.
Reverse Mortgage – A loan to an elderly homeowner on which the balance rises overtime and which is not repaid until the owner dies, sells the house or moves out permanently.
Sale Agreement - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
Secondary Mortgage Market - Markets in which mortgages or mortgage-backed securities are bought and sold.
Second Mortgage - A subordinate mortgage made in addition to a first mortgage.
Servicing (or Loan Administration) - Administering loans between the time of disbursement and the time the loan is fully paid off. This includes collecting monthly payments from the borrower, maintaining records of loan progress, and related responsibilities (such as handling escrows for property tax and insurance, foreclosing on defaulted loans, and remitting payments to investors).
Settlement (or Closing) - Meeting between the buyer, seller, and lender or their agents at which property and funds legally change hands.
Settlement Costs – Costs that the borrower must pay at the time of closing, in additin to the down payment.
Shared Appreciation Mortgage (SAM) - Loan in which the borrower is given a below-market interest rate and the lender receives a portion of the future appreciation of the property value.
Simple Interest - Interest that is computed only on the principal balance.
Start Rate - Pre-determined rate of interest that will be applied to the loan until the date of the first interest rate change.
Subsidized Second Mortgage - Alternative financing option for low- and moderate-income households that also includes a down payment and a first mortgage, with funds for the second mortgage provided by city, county, or state housing agencies, foundations, or nonprofit corporations. Payment on the second mortgage is often deferred and carries low interest rates (if any). Part of the debt may be forgiven for each year the family remains in the home.
Subordination policy – The policy of a second mortgage lender for allowing a borrower to refinance the first mortgage while leaving the second in place.
Swing loan – see bridge loan.
Tax Impound - Money paid to and held by a lender for annual tax payments. See Impound Account.
Tax Lien - Claim against a property for unpaid taxes.
Tax Sale - Public sale of property by a government authority as a result of nonpayment of taxes.
Term - The number of years it will take to pay off a loan.
Title - Document that gives evidence of ownership of a 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 – An investigation by a title company to ensure that the seller is the legal owner of a property. Process involves examining municipal records and verifying that there are no liens or other claims against that property.
Total debt ratio – Monthly debt and housing payments divided by gross monthly income. Also called obligations-to-income ratio or back-end ratio.
Transfer Tax - Tax paid when the title of a property passes from one owner to another.
Trust Account - Account maintained by a broker or escrow company to handle all money collected for clients.
Trustee -Someone given legal responsibility to hold property in the best interest of another.
Truth in Lending Act – A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
Two-Step Mortgage – An adjustable mortgage with a low fixed interest rate for 5, 7, or 10 years, which is then adjusted to the current market rate plus a predetermined margin for the remainder of the loan’s term.
Underwriting -The process used by lenders to examine credit history, verify employment data and otherwise evaluate a loan for approval. The underwriter determines if and how large a loan is approved..
Usury - Interest charged in excess of the legal rate established by law.
VA Loan – A long-term home loan available to military veterans with little or no down payment and guaranteed by the U.S. Veteran's Administration
Variable Rate Mortgage - See Adjustable-Rate Mortgage (ARM).
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.
Waive escrow – Authorization by the lender for the borrower to pay taxes and insurance directly.
Warehouse Fee - Mortgage firms often borrow funds on a short-term basis in order to originate loans that will later be sold to investors in the secondary mortgage market. When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss that is offset by charging a warehouse fee.
Wraparound Mortgage - A mortgage on a property that already has a mortgage, where the new lender assumes the payment obligation on the old mortgage, resulting in an interest rate somewhere between the old rate and the current market rate.
Zoning Ordinances - Local law establishing building codes and usage regulations for properties in a specified area. This creation of districts specifies different types of property uses such as commercial or residential.