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GLOSSARY:
 Mortgage
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Accrued Interest - Interest which
has been incurred but not paid.
Adjustable Rate Mortgage (ARM) - A mortgage in which the
interest rate is adjusted periodically based on a pre-selected index.
Subject to certain limitations, the rate and payments on an ARM loan
rise and fall with the market.
Adjustment Interval or Adjustment Period - The length of time
between rate adjustments on an Adjustable Rate Mortgage (ARM).
Agreement of Sale - Contract
signed by buyer and seller stating the terms and conditions under
which a property will be sold.
Amortization - The process of paying off a mortgage in regular
increments.
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Amortization Schedule - A monthly
repayment schedule outlining how a loan will be paid off in fixed
payments combining principal and interest.
Annual Percentage Rate (APR) - A calculation that expresses the
total cost of a mortgage loan as a yearly rate (according to a
federally mandated procedure). The APR calculation takes into account
monthly interest payments, mortgage insurance, points, and certain
fees paid at origination.
Application - An initial statement of personal and financial
information required to approve a loan provided by the borrower and
necessary to initiate the approval process for a loan.
Application Fee - Fee charged by lender to cover the initial
costs of processing a loan application.
Appraisal - A written estimate of a property's current market
value, based on recent sales information for similar properties, the
condition of the property, and the neighborhood's impact on future
property value.
Appraisal Fee - A fee charged by a licensed, certified
appraiser to provide an appraisal.
APR - See Annual Percentage Rate.
ARM - See Adjustable Rate Mortgage.
Assessment - A local tax levied against a property for a
specific purpose, such as road or sidewalk construction or sewer or
street light installation.
Asset Documentation - Documents that verify the existence of
the borrower’s assets.
Assumability - A loan feature that allows the loan to be
transferred from the seller to the purchaser of a home with the same
terms and conditions, subject to lender approval.
Balloon Mortgage - A short-term, fixed-rate loan with low
payments for a set number of years and a large balloon payment of the
remainder of the principal and interest due at the end of the term.
Bankruptcy - Proclamation by a court of an individual's (or
organization's) state of insolvency, or inability to pay debts.
Bearer - The legal owner of a piece of property.
Bi-weekly Mortgage - A payment plan under which the borrower
pays one half of a monthly payment every two weeks.
Bona Fide - In good faith.
Borrower (or Mortgagor) - An individual who applies for and
receives a loan in the form of a mortgage with the intention of
repaying the loan in full.
Buy-Down - A situation in which the seller contributes money,
allowing the lender to give the buyer a lower rate and payment,
usually in exchange for an increase in sales price.
Buyer's Market - Market conditions that favor buyers. With more
sellers than buyers in the market, buyers have ample choice of
properties and may be able to negotiate lower prices.
Caps - Limits on changes in ARM interest rates or monthly
payments, either in an adjustment period or over the life of the loan.
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.
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, payment
caps may cause negative amortization.
Cash Out - A refinance for more than the balance of the current
mortgage. The excess money taken out reduces the borrower's equity.
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.
CC&Rs - See Covenants, Conditions and Restrictions.
Ceiling (Life Cap) - The maximum allowable interest rate of an
adjustable rate mortgage over the life of the loan.
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 Agent - Neutral third party appointed to act as a
custodian for documents and funds during the transfer of property from
seller to buyer. Depending on local law and custom, this could be an
attorney, escrow agent, or title company.
Closing Costs - Costs associated with the closing of the loan
(e.g. title costs, loan fees, discount fees, inspection fees,
appraisals, etc.).
Closing/Settlement Statement - A form prepared by the closing
agent that itemizes the closing costs associated with purchasing or
refinancing a home. Also see HUD-1.
Cloud on Title - An outstanding claim or encumbrance that, if
valid, would affect or impair the owner's title.
Combined Loan - To-Value (CLTV) - The percentage of the
property value borrowed through a combination of more than one loan
(for example, first mortgage and home equity line of credit).
Mathematically, the combined loan and line of credit amounts divided
by property value equals Combined Loan-To-Value Ratio.
COFI - See Cost of Funds Index.
Collateral - Assets that secure a loan. (In the case of a
mortgage, real property serves as collateral.)
Commission - Money paid to a real estate agent or broker in a
sales transaction.
Commitment - A formal offer by a lender to a borrower to make a
loan under certain terms or conditions.
Condominium - A form of property ownership in which the
homeowner holds title to an individual dwelling unit and an interest
in common areas and facilities of a multi-unit project.
Conforming Loan - A mortgage loan eligible for purchase by the
two federally sponsored housing agencies, Fannie Mae and Freddie Mac.
Contingency - A condition which 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.
Convertible ARMs - ARMs with the option of conversion to a
fixed rate loan during a given time period.
Conveyance - The transfer of a deed, lease, or mortgage.
Cost of Funds Index (COFI) - A common index used in adjustable
rate loans based on the weighted-average interest rate paid for
deposits by savings institutions that are members of the 11th Federal
Home Loan Bank District.
Covenants, Conditions, and Restrictions (CC&Rs) - A document
that defines the use, requirements and restrictions of a condominium
or Planned Unit Development (PUD).
Credit Report - A report detailing the credit history of a
prospective borrower, used by lenders to help determine
creditworthiness.
Debt-To-Income Ratio - A figure, expressed as a ratio, that
compares the amount of recurring debt payments a borrower is obligated
to make to the amount of their income.
Deed - Legal document by which title to a property is
transferred 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 creating a lien on a property as
security for the payment of a debt. In some states, a mortgage is used
instead.
Default - Failure to meet legal obligations in a contract,
including failure to make payments on a loan. A mortgage is generally
considered to be in default when a payment is 30 days past due.
Delinquency - Failure to make required payments on time.
Deposit - Cash paid to the seller when a formal sales contract
is signed.
Depreciation - Decline in property value.
Document Review - A process by which the lender reviews
documents necessary to fund a loan.
Down Payment - In a home purchase, the difference between the
purchase price and the mortgage amount.
Earnest Money - Deposit made by a buyer toward the down payment
as evidence of good faith when the purchase agreement is signed.
ECOA - See Equal Credit Opportunity Act.
Encumbrance - A legal right or interest in a property that
affects title and may lessen the property value.
Equal Credit Opportunity Act (ECOA) - Federal law requiring
creditors 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 outstanding mortgage balance.
Equity Loan - A loan based on the borrower's equity in his or
her home.
Escrow - Neutral third party appointed to act as a custodian
for documents and funds during the transfer of property from seller to
buyer or in the course of refinancing property.
Escrow Account - Account held by lender containing funds
collected in conjunction with monthly mortgage payments. Also known as
impounds, the funds in this account are held in trust by the lender on
behalf of the borrower, and are used to pay expenses such as property
taxes and homeowner's insurance.
Escrow Officer - See Closing Agent.
Estimated Settlement (or Closing) Statement - A document
provided by the closing agent, prior to loan closing, estimating all
costs and indicating the final sum the buyer will be required to bring
to the closing.
Expense-To-Income Ratio - Also known as Back-End Ratio and
Debt-to-Income Ratio. The figure derived by dividing all borrower's
monthly financial obligations by his/her gross monthly income.
Fannie Mae (FNMA) - Corporation created by Congress that buys
and sells residential mortgages. Fannie Mae provides funds for one in
seven mortgages.
Farmer's Home Administration (FmHA) - An agency of the U.S.
Department of Agriculture that provides financing for purchasers of
homes and farms in small towns and rural areas.
Federal Housing Administration (FHA) - Government agency,
division of the Department of Housing and Urban Development, which
insures residential mortgage loans made by private lenders and sets
standards for underwriting mortgage loans.
Federal National Mortgage Association (FNMA) - See Fannie Mae.
Federal Reserve - Central bank of the United States and major
regulatory agency for many commercial banks.
Fee Simple - Absolute ownership of real property.
FHA - See Federal Housing Administration.
FHA Loan - Mortgage loan insured by the FHA for low to middle
income borrowers, open to all qualified home purchasers.
FICO Score - A credit evaluation score developed by Fair,
Isaac, and Co., used by lenders as one factor in making a loan
decision. Some methods of improving a score are to establish and
maintain a payment history on credit accounts, keep public records
(bankruptcies, judgments, etc.) and collection accounts to a minimum,
pay down loans, keep credit cards well below their limits, avoid late
payments, and limit applying for new credit.
First Mortgage - The primary lien against a property.
Fixed Rate - An interest rate that does not change during 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.
Federal Home Loan Mortgage Corporation (FHLMC) - See Freddie
Mac.
Flood Insurance - A form of hazard insurance that covers
improved property damage or loss due to flood.
Floor - The minimum interest rate payable on an Adjustable Rate
Mortgage.
Freddie Mac (FHLMC) - Quasi-governmental agency that purchases
conventional mortgages from insured depository institutions and
HUD-approved mortgage bankers.
Ginnie Mae - See Government National Mortgage Association.
GNMA - See Government National Mortgage Association.
Government National Mortgage Association (GNMA, or Ginnie Mae)
- Government agency that provides funds for VA and FHA loans.
Good Faith Estimate - Written estimate of costs the borrower
will pay at closing, provided by a lender within three business days
of loan application.
Grace Period - Period of time during which a loan payment may
be made after its due date without incurring a late penalty.
Graduated Payment Mortgage (GPM) - Mortgage in which initial
low payments (with potential negative amortization) increase regularly
for several years and then level off.
Gross Income - Borrower’s total income before taxes or expenses
are deducted.
Gross Monthly Income - Total monthly income before taxes or
expenses are deducted. Used in the loan origination process to
calculate borrower's ability to make payments on a loan.
Guarantee or Guaranty - A promise by one party to pay a debt or
perform an obligation contracted by another in the event of that
person's default.
Hazard Insurance - A policy that protects the insured against
loss due to fire or certain natural disasters in exchange for a
premium paid to the insurer. Also known as Homeowner Insurance or fire
insurance.
Home Equity Line Of Credit - A revolving line of credit secured
by the equity in the home. Unlike a Home Equity Loan, these funds may
be drawn and repaid like a credit card.
Home Equity Loan - An additional mortgage secured by the equity
in the home. All funds for this loan are disbursed at closing. (In
contrast, see Home Equity Line Of Credit).
Homeowner's 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 Code - Local government ordinance that sets minimum
standards of safety and sanitation for existing residential buildings.
Housing Expense-To-Income Ratio - The ratio, expressed as a
percentage, that results when dividing a borrower's housing expenses
by his/her gross monthly income.
HUD - See Housing and Urban Development.
HUD-1 Settlement Statement - A form mandated by the federal
government that itemizes the closing costs associated with purchasing
a home. Also see Estimated Settlement Statement.
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 - See Escrow Account.
Index - A published rate used by lenders to calculate interest
adjustments on adjustable rate mortgages (Index + Margin = Interest
Rate). Common indexes include 1-Year Treasury securities, COFI (Cost
Of Funds Index), and Six-Month LIBOR (London Interbank Offered Rate).
Initial Rate - The interest rate charged during the first
interval of an adjustable rate mortgage.
Insolvency - Condition of a person unable to pay debts as they
fall due.
Interest - Charge paid for borrowing money.
Interest Rate - The rate, expressed as a percentage, of the
outstanding balance used to calculate interest charges.
Interest Rate Cap - A safeguard built into ARMs to prevent
drastic changes in interest rates.
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 receiving the share of the deceased.
Jumbo Loan - A mortgage with a principal balance that exceeds
the amount eligible for purchase by Fannie Mae and Freddie Mac. Jumbo
loans generally 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.
Late Charge - Penalty paid by a borrower when a payment is made
after the grace period provided by the lender.
Lender - The bank, mortgage company, or mortgage broker
offering the loan.
LIBOR, London Interbank Offered Rate - The interest rate
charged among banks for short-term Eurodollar loans, and a common
index for adjustable rate mortgages.
Lien - A legal claim against a property that must be paid when
the property is sold.
Lifetime Interest Rate Cap - The highest interest rate that can
be charged for an adjustable rate mortgage during the life of the
loan.
Loan Servicing - 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 Application - Document required by lenders prior to loan
approval containing detailed information about the borrower and
property.
Loan Application Fee - Fee paid by prospective buyer to lender
when applying for a mortgage.
Loan Origination Fee (or Processing Fee) - Fee charged by a
lender to originate and process a loan.
Loan-To-Value (LTV) Ratio - The percentage of the property
value borrowed (loan amount/property value = loan to value ratio).
Lock (or Lock-in) - A lender's guarantee of an interest rate
and related points for a set period of time, usually between loan
application and loan closing. Protects borrower against rate increases
during that time.
LTV - See Loan-To-Value Ratio.
Margin - The percentage amount added to an index to calculate
the new interest rate of an adjustable rate mortgage at each
adjustment.
Market Value - The value that a willing seller would accept and
a willing buyer would offer given a reasonable time for the seller to
market a property.
Monthly Housing Expense - Total monthly expense of mortgage
principal and interest, taxes, and insurance.
Mortgage - Document creating a lien on a property as security
for the payment of a debt. In some states, a Deed of Trust is used
instead.
Mortgage Banker - A lender that originates and funds, then
sells and services mortgage loans.
Mortgage Broker - A person or entity that arranges financing
for borrowers, but places loans with lenders rather than funding them
with the broker's own money.
Mortgage Insurance - Insurance purchased by a borrower to cover
the lender's risk of loss. Mortgage Insurance is generally required by
lenders when the loan-to-value on a first mortgage is greater than 80%
of the value of the property.
MIP, Mortgage Insurance Premium - The monthly, or yearly,
payment for mortgage insurance.
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 secured by a mortgage.
Mortgagee - The lender in a mortgage loan transaction.
Mortgagor - The borrower in a mortgage loan transaction.
Negative Amortization - Increase in principal balance that
occurs when monthly payments are not large enough to pay all interest
accrued on a loan, usually caused when payment caps prevent sufficient
payment increases. Deferred interest is added to the loan balance,
resulting in the borrower owing more than the original amount of the
loan.
No Doc Loan - A loan for which neither income, employment, nor
assets are stated on application. Borrowers must have a perfect credit
history.
No Ratio Loan - This loan program is offered for borrowers who
have a strong asset base and perfect credit history; the loan
application must be fully completed except for any reference to
income.
Note - Legal document stating the terms of a debt and a promise
to repay it.
Origination Fee - See Loan Origination Fee.
Owner Financing - A purchase in which the seller provides all
or part of the financing.
Payment Cap - Limit on the amount by which a borrower's
adjustable rate mortgage payments may increase, regardless of rise in
interest rates. May result in negative amortization.
Per Diem Interest - Interest calculated per day. Depending on
the day of the month on which closing takes place, borrower pays
interest from the date of closing to the end of the month. The first
mortgage payment of a loan is generally due on the first of the
following month.
Periodic Interest Rate Cap - A limit on the amount that
interest rates can change at each adjustment period.
PITI - Principal, Interest, Taxes, and Insurance, the
components of a monthly mortgage payment; also called Monthly Housing
Expenses.
Points (or Discount Points) - Money paid to a lender at closing
in exchange for a lower interest rate. Each point is equal to 1% of
the loan amount.
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.
Prime Rate - Lowest commercial interest rate charged by a bank
on short-term loans to its most credit-worthy customers. Often used as
an index for home equity lines of credit.
Power of Attorney - Legal document authorizing one person to
act on behalf of another.
Prepaid Expenses - Taxes, insurance, and assessments paid in
advance of due dates.
Prepaid Interest - Interest charged to a borrower at closing to
cover interest on the loan between closing and the end of the month in
which the loan closes.
Prequalification - The process of estimating how much money a
prospective homebuyer will be eligible to borrow prior to application
for a loan.
Principal - The amount of debt, not counting interest, left on
a loan.
Private Mortgage Insurance (PMI) - see Mortgage Insurance.
Property Tax - A government tax based on an assessed value of a
property.
PUD, Planned Unit Development - A project or subdivision that
includes common property that is owned and maintained by a homeowners'
association for the benefit and use of all individual PUD unit owners.
Purchase Agreement - Contract signed by buyer and seller
stating the terms and conditions under which a property will be
purchased.
Rate Lock (or Lock In) - A lender's guarantee of an interest
rate and related points for a set period of time, usually between loan
application and loan closing. Protects borrower against rate increases
during that time.
Real Estate Broker - An agent who represents a buyer or seller
in a real estate transaction.
Real Estate Settlement Procedures Act (RESPA) - Law requiring
lenders to give borrowers advance notice of closing costs.
Real Property - Land and everything that is permanently affixed
to it.
Realtor - Real estate professional who is a member of the
National Association of Realtors.
Re-Amortize - The function to provide a new payment amount as
it relates to a new loan amount or a new interest rate.
Reclamation - The right of the person with title to a property
to recover it from the debtor in the event 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.
Reduced Doc Loan - This program eliminates the need to verify
income. Income stated on the 1003 is used for qualification. Borrowers
who receive W2 income are not qualified for this type of loan. Two
years of continuous self-employment income or an established or
consistent 2 years' source of income is required.
Refinancing - The process of paying off one loan with the
proceeds from a new loan secured by the same property.
Repossession (or Foreclosure) - Legal process by which the
lender forces the sale of a property because the borrower has not met
the mortgage terms.
Rescisssion - The cancellation of a mortgage loan, permitted by
law on a refinance transaction when the property is owner occupied.
RESPA - See Real Estate Settlement Procedures Act.
Sales Agreement - Contract signed by buyer and seller stating
the terms and conditions under which a property will be sold.
Second Mortgage - A subordinate mortgage made in addition to a
first mortgage.
Secondary Mortgage Market - The market into which primary
mortgage lenders sell the mortgages to obtain funds to originate more
new loans. Includes investors like Fannie Mae and Freddie Mac.
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).
Settlement (or Closing) - Meeting between the buyer, seller,
and closing agent at which property and funds legally change hands.
Settlement Cost (HUD guide) - Booklet published by the
department of Housing and Urban Development (HUD) that provides an
overview of the lending process, given to consumers after completing
their loan applications.
Settlement Costs - See Closing Costs.
Settlement Sheet - The computation of costs payable at closing
which determines the seller's net proceeds and the buyer's net
payment.
Simple Interest - Interest computed only on the principal
balance.
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 by improvements made
by the owner.
Tax Impound - See Escrow Account.
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 number of years it will take to pay off a loan.
Title - Document which gives evidence of ownership of a
property and the rights of ownership and possession of that 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 no liens or other
claims exist against the property.
Transfer Tax - Tax paid when title passes from one owner to
another. Not applicable in all jurisdictions.
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 - Federal law requiring written disclosure
of the terms of a mortgage by a lender to a prospective borrower
within three business days of application.
Underwriting - The process of verifying data and evaluating a
loan for approval.
Usury - Interest charged in excess of the legal rate
established by law.
VA Loan - Home loan available to veterans with little or no
down payment and guaranteed by the U.S. Veteran's Administration.
Variable Rate - Interest rate that changes periodically in
relation to an index.
Variable Rate Mortgage - See Adjustable Rate Mortgage.
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.
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.
Wrap-Around Mortgage - Loan arrangement in which an existing
loan is combined with a new loan, resulting in an interest rate
somewhere between the old rate and the current market rate.
Zoning Ordinances (or Zoning Regulations) - Local law
establishing building codes and usage regulations for properties in a
specified area.
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