| 401(k)/403(b) | An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not-for-profit organizations. |
| 401(k)/403(b) Loan | Some administrators of 401(k)/403(b) plans allow for loans against the monies accumulated in these plans - monies must be repaid to avoid serious penalty charges. |
| Acceptance | A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer. |
| Additional Principal Payment | An amount paid above and beyond the required monthly payment in order to reduce the outstanding balance on the loan and to save on interest by reducing the term length. |
| Adjustable Rate Mortgage (ARM) | Also called a Variable Rate Mortgage, an ARM is a mortgage with an interest rate that can adjust periodically; this adjustment is usually tied to some underlying index. Your mortgage payments will go up if interest rates rise and go down if interest rates decline. To protect you, the interest rate usually has a maximum to which it can be raised and to protect the lender, a minimum to which it can fall. |
| Adjustment Period | The length of time between interest rate changes for an adjustable rate mortgage. |
| Amenity | A feature that helps to increase the value of a home, such as: a pool, tennis courts, etc. |
| Amortization | The gradual repayment of a home by periodic installments. |
| Amortization Schedule | A schedule showing all the payments that will be made over a specified time frame, and the amount of money that goes to principal and interest for each payment. |
| Amortization Term (or period) | The length of time it takes to pay off a loan. This is expressed in number of months. For example, a 15 year loan would have an amortization term of 180 months. |
| Amortize | To make the loan such that it is paid off in equal payments, including interest and principal, over the specified time frame. |
| Annual Percentage Rate (APR) | The annual percentage rate is the total rate of interest you will pay when items such as fees and points are factored in. This is always higher than the simple interest rate you see advertised occasionally. To get the true interest rate from a lender always ask for the APR. |
| Application (or 1003) | A form completed by the home loan applicant which provides the lender with the applicants employment history, income, assets, debts, and other financial information. Also called a 1003—the number Fannie Mae uses for its standard application. |
| Appraisal | An estimate of a home’s value given by a professional appraiser. The maximum allowable mortgage loan is usually based on the appraised value. |
| Appraiser | An individual who is qualified to estimate the value of a home. Appraisers must take classes, pass a test, and become licensed. |
| Appreciation | An increase in the value of property due to, among other things: inflation, increased demand, decreased supply, or improvements made. The opposite of depreciation. |
| Assessed Value | The value used to determine your yearly property taxes, based on a public tax assessor’s opinion. This will sometimes differ from your appraised value. |
| Assessment | The amount of tax due to the government based on your property’s assessed value. |
| Assessment Rolls | A public record of the assessed value of property in the taxing jurisdiction. |
| Assessor | A government employee who establishes the value of property for taxation purposes—your property tax is based on the assessed value. |
| Assumable Loan | A home loan owned by a seller that can be taken over (assumed) by the buyer who purchases the seller’s home. Not all home loans are assumable. |
| Assumption Clause | A provision in an assumable loan that allows a buyer to assume responsibility for the home loan from the seller. The loan does not need to be paid in full by the original borrower (seller) upon sale or transfer of the property. |
| Assumption Fee | The fee paid to a lender by the buyer for the lender’s agreement to collect payments from the buyer rather than the seller. |
| Balance Sheet | A financial statement that shows an individual’s net worth, liabilities, and assets as of a specific date. Balance sheets are useful for determining how much of a home you can afford. |
| Balloon Loan | A loan that has level monthly payments that are amortized over a stated term, say 30 years, but requires a lump sum of the entire principal at the end of a shorter term, like 10 years. The advantage of this loan is that you can usually get a lower interest rate. Individuals who are expecting a big increase in wages in the future might get a loan like this. |
| Balloon Payment | The final lump sum made at the end of a balloon loan that pays off the remaining principal. |
| Bankruptcy | When a person or corporation, is financially unable to cover all debts when due. The debtor seeks relief through a court proceeding in which a payment schedule is devised or debts are erased. In some instances, the debtor must surrender all assets to a court-appointed trustee. |
| Bill of Sale | A written document that transfers ownership of personal property from a seller to a buyer. A bill of sale cannot be used to transfer real property (land). |
| Biweekly Payment Loan | A loan that requires payments to reduce the debt every two weeks instead of the traditional monthly payment schedule. The 26 or 27 biweekly payments are each equal to one-half of the standard monthly payment and are usually drafted from the borrower’s bank account. By doing this the individual saves money on the interest paid because of a faster increase in the reduction of principal. |
| Bond | An interest bearing certificate of debt with a maturity date. Real estate bonds are usually secured by a mortgage or a deed of trust. |
| Breach | When the terms of a legal document are violated. |
| Bridge Loan | This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property—it bridges the old and new loan. |
| Broker | A person who is licensed by the state to assist in negotiating a real estate contract. Brokers are normally commissioned and typically make around 3% of the sale price (buyer’s broker receives 3% and the seller’s broker receives 3%). |
| Building Code | Local regulations that outline requirements that must be met when a house is built. This includes the design, construction, and materials that are used for building a home. Building codes are meant to protect individuals from improperly built or dangerous buildings. |
| Buydown | Typically, a lump sum given to the lender by the seller at closing to help reduce the buyer’s monthly payment. A permanent buydown reduces the interest rate over the entire length of the loan, while a temporary one might reduce the the rate for a a year or two. |
| Buydown Account | An account in which funds are held so that they can be applied to part of the monthly loan payment as each payment comes due during the period that an interest rate buydown plan is in effect. E.g., if a seller agrees to help reduce a buyer’s monthly payment for a short amount of time, say a year, the seller may put money in a buydown account, which is then used to pay the lender a portion of the mortgage amount owed by the buyer every month. It is more common, however, to have the seller give the lender a lump sum at closing. |
| Call Option | A provision in a loan that allows the lender to accelerate the debt (call it due) and require full payment of the loan. This can be done because of the passing of time or for a specified reason, like the borrower missed some payments. |
| Cap | A provision of an adjustable rate mortgage (ARM) that puts a limit on how high or low the interest rate may go. The increase or decrease in the interest rate is usually tied to an underlying index. |
| Capital Expenditure | cost of an improvement made to extend the useful life of property or done to increase its value. An example, would be adding a room to your house. Capital expenditures are appreciated over their useful life, while repairs are subtracted from income for the current year. |
| Capital Improvement | Any structure or component added to real property that adds to its value and useful life. An example of this is adding on another garage—painting your walls is not a capital improvement. |
| Cash Available for Closing | Funds the borrower has available to cover the down payment and closing costs. If a lender requires that you have cash reserves at the time the loan closes you cannot use the money that will be used to pay for closing and the down payment as your cash reserve. |
| 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. The borrower effectively borrows against the home equity. |
| Ceiling | The maximum interest rate your lender can charge on an ARM or variable rate loan as determined in your loan document. The ceiling is the same as the cap. |
| Certificate of Eligibility | A document issued by the federal government certifying that an individual is a veteran of the U.S. military. This certificate is required to receive a VA loan from the Department of Veteran Affairs. |
| Certificate of Reasonable Value (CRV) | A document issued by the Department of Veteran Affairs establishing the maximum VA loan amount. This amount is based upon an approved appraisal. |
| Certificate of Title | A statement provided by a title company, abstract company, or attorney stating who holds title to the property in question based upon public records. This is not an official document of ownership. |
| Chain of Title | The history of all the documents affecting the title to real property, starting with the earliest existing document and ending with the latest. |
| Co-Signer | An individual who signs a promissory note along with the borrower in order to help the borrower get approved for a loan. Because the co-signer is legally responsible along with the borrower to insure the fulfillment of the loan, lenders are more willing to give loans to borrowers who have co-signers with good, established credit. |
| Convertibility Clause | A provision in some loans that allows you to change an ARM loan to a fixed rate loan, usually after the first adjustment period. This conversion is likely to require an additional fee. |
| Cooperative (co-op) | A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the corporation that owns the property, giving each resident the right to occupy a specific apartment |
| Cost of Funds Index (COFI) | An index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th district members of the Federal Home Loan Bank of San Francisco. |
| 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 History | A history of an individual’s willingness and ability to repay debt. Lenders use your credit history to determine if you would be a good debtor; in other words, if you’re going to pay them back. |
| Credit Life Insurance | A type of insurance that pays off a loan if one of the borrowers dies while the policy is in force. |
| Credit Limit | The maximum amount of money that can be borrowed in a given time period. |
| Credit Rating | A rating given to an individual based upon past credit history and their present financial condition. |
| Credit Report | A detailed report of an individual’s credit, residence history, and employment which is used by a prospective lender to determine how much of a credit risk the individual poses. A credit report will list any public record entered against an individual, including judgments, tax liens, bankruptcies, etc. |
| Credit Repository (credit bureau) | An organization that collects information pertinent to determining an individual’s credit worthiness. This information is then used by lending institutions to determine the risk involved with lending you money. The three major institutions are Experian, Equifax and Transunion. |
| Credit Scoring | Credit scores are numerical values that are derived from your credit history: your past payment history, your amount of debt, how much credit you have available and other factors go into determining your score. Lenders generally look at your FICO score made available by the Fair Isaacs Corporation. Credit scores have proven to be fairly accurate indicators of an individual’s creditworthiness. |
| Creditor | A person to whom money is owed. |
| Cumulative Interest | The total amount of accrued interest. |
| Current PITI | This is an abbreviation for a monthly payment that includes the principal, interest, taxes and insurance. |
| Curtailment | A payment that lowers the amount of principal owed on a loan. |
| Debt | An amount of money owed by one individual to another. |
| Debtor | A person who owes money (in debt to another). |
| Deed | A legal document which conveys ownership (title) to a property. The deed is a tangible document, while a title is not. |
| Deed Of Trust | This document is used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan. |
| Deed-In-Lieu | A deed given by the borrower to the lender in order to avoid foreclosure. It is also called a ?voluntary conveyance?. |
| Default | When an individual fails to make loan payments when scheduled or doesn?t comply with loan requirements. |
| Delinquency | Failure to make the payments on a mortgage when due. |
| Deposit | A sum of money given to hold something (the right of ownership) until a specified date. Deposits are usually non-refundable. |
| Depreciation | A decline in the value of a property due to age and the loss of usefulness; the opposite of appreciation. |
| Discount Points | A sum of money paid to a lender at origination to lower the interest rate on a loan. Discount points save you money in the long run. |
| Document Preparation Fee | A fee for the processing of certain legal documents such as the mortgage, note, and truth-in-lending statement. |
| Down Payment | The part of the purchase price that the buyer pays for in cash during closing. |
| Draw Period | The time period during which the borrower may access and use a line of credit. |
| 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 house that is used as security for the loan. |
| Due-On-Transfer Provision | Similar to a due-on-sale provision, but used for second mortgages. |
| Earnest Money Deposit (Earnest Money) | A deposit made by a buyer who wants to prove their level of interest in the house. Deposits are usually non-refundable. |
| Easement | Legal access to a property by people other than the property owners; a right of way. |
| Effective Age | An estimate given by an appraiser of a building's effective age. The actual age of the building may be longer or shorter than it's actual age. |
| Eminent Domain | The right of the government to take private property for the public good. The government must pay a fair sum when they condemn a property. |
| Employer-Assisted Housing | A Fannie Mae housing initiative that allows employers to work with local lenders to help their employees purchase a home. |
| Encroachment | An improvement that physically intrudes or trespasses on another's property. |
| Endorser | A person who signs a check or promissory note over to another party. |
| Equal Credit Opportunity Act (ECOA) | A federal law that requires lenders and other creditors to not discriminate when making loans available. Race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs are all protected under the ECOA. |
| Equity | This is the market value of the property minus all loans outstanding on it. Basically, what you would receive if you sold your home minus your liens. |
| Escrow | Can serve two purposes. 1) A third party that carries out the instructions of both buyer and seller and often holds deposits. 2) Or a third party account set up by your lender in which a portion of your monthly payment is set aside to pay for taxes and insurance. |
| 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. |
| Escrow Collections | Funds collected by the loan servicer and set aside in an escrow account to pay borrower expenses such as property taxes, mortgage insurance, and hazard homeowner's insurance. |
| Escrow Disbursements | The use of escrow funds to pay real estate taxes, homeowners insurance, mortgage insurance, and other property expenses as they come due. |
| Escrow or (Impound) Account | The account in which a loan servicer holds the borrower's escrow payments prior to paying property expenses, such as property taxes, or homeowner's insurance. |
| Escrow Payment | The portion of a borrower's monthly payment that is held by the loan servicer to pay for taxes, hazard homeowner's insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states. |
| Estate | The ownership of the total of both real and personal property owned by an individual at the time of death. |
| Eviction | Action taken by a landlord to remove a tenant because of non-payment, or a breach of contract. |
| Examination of Title | The report on the title of a property from the public records or an abstract of title. |
| Exclusive Listing | A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified amount of time, but allowing the owner to sell the property without paying a commission. |
| Fair Credit Reporting Act | A consumer protection law that regulates the disclosure and use of of consumer credit information, establishes rules for credit reporting to consumer credit reporting agencies, and establishes procedures for a consumer to view his or her credit report and fix any mistakes. |
| Fair Market Value | The purchase price that a willing and able buyer, and a willing and able seller agree to. |
Fannie Mae
(Federal National Mortgage Association | A New York Stock Exchange Company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. It adds liquidity to the mortgage market by investing in home loans throughout the country. |
| term | definition |
| Federal Housing Administration (FHA) | An agency of the US Department of Housing and Urban Development (HUD). Its main activityis the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and loan underwriting, but does not lend money or plan or construct housing. |
| Fee Simple | An unconditional, unlimited estate of inheritance that represents the greatest estate and most exstensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property. |
| FHA Coinsured Home Loan | A loan (under FHA section 244) for which the Federal Housing Administration and the originating lender share the risk of loss in the event of the borrower's default. |
| FHA Home Loan | A mortgage home loan that is insured by the Federal Housing Administration (FHA). Also known as a government loan. |
| FHA Loan | The FHA does not lend money or make a loan, instead it insures the loan that you get. For FHA loans a 2.25% up front Mortgage Insurance Premium (MIP) that can be financed in the mortgage amount or paid for at closing and an annual Mortgage Insurance Premium (.5%) is required. For an FHA loan a down payment can be as low as 2.25%. See their website for the latest information.
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| First Mortgage (Home Loan) | A home loan that is the primary lien against the property. |
| Fixed Installment | The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest. |
| Fixed Period ARM | Provides a fixed rate for 3, 5, 7, or 10 years then adjusts annually based on a financial index for the remaining loan term. |
| Fixed Rate Mortgage | A mortgage with an interest rate that stays the same (fixed) over the life of the mortgage. The monthly payments have been amortized for the life of the loan and will not change. Compare this to an ARM's monthly payments, which fluctuate depending on interest rates. |
| Fixture | Personal property that becomes real property when attached to real estate in a permanent manner. Items like light fixtures, cabinets, built-in-dishwashers are considered fixtures. |
| Flood Check | A survey which determines whether or not a property is in a flood zone. |
| Flood Insurance | Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas. |
| Foreclosure | The legal process by which a borrower's interest in mortgaged property is taken because of a default on the loan. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to a mortgage debt. |
| Forfeiture | The loss of rights, money, privileges, or property due to a breach of a legal obligation. |
Freddie Mac
(Federal Home Loan Mortage Corporation | 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. |
| Good Faith Estimate | A document provided when you apply for a loan. It provides estimates of all costs associated with obtaining and closing a mortgage loan. |
| Government Loan | A loan that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veteran Affairs (VA) or the Rural Housing Service (RHS). |
Government National Mortgage Association
(GNMA or | A government owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae. |
| Grantee | The person to whom an interest in real property is conveyed (e.g. the buyer). |
| Grantor | The person who conveys an interest in real property (e.g. the seller). |
| Gross Monthly Income | Normal annual income including that is regular or guaranteed. The before taxes income may be from multiple sources. Salary is generally the main source, but other sources may count if they are regular and substantial. |
| Ground Rent | The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate. |
| Group Home | A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. The structure provides long-term housing and support services that are residential in nature. |
| Home Equity Line of Credit (HELOC) | A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property. |
| 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. |
| Home Owner's Warranty (HOW) | A type of insurance that cover repairs to specified parts of a house for a specified period of time. It may be provided by the builder or property seller as a condition fo the sale, but homeowners can also purchase it. |
| Homeowner's Insurance (Hazard Insurance) | Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. It usually does not cover damage caused by flooding. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents. |
| Homeowners' Association | A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements. |
| Housing Expense Ratio | The percentage of gross monthly income that goes toward paying housing expenses. To qualify for a loan, normally, not more than 28% of your monthly income can be devoted to your house payment, which includes property taxes and insurance. To calculate this, simply add up your monthly income and then multiply that number by 0.28. |
| HUD Median Income | Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD). |
| HUD-1 Settlement Statement | A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet.\ |
| Hypothecation | Using property as collateral or security for a debt without giving up possession of the property. |
| In-File Credit Report | An objective account, normally computer-generated, of credit and other financial information obtained from a credit reporting agency. |
| Income Property | Real estate developed or improved to produce income. |
| Index | A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. Some lenders provide caps that limit how much the interest rate or loan payments may increase or decrease. |
| Inflation | An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less. |
| Initial Draw Amount | The amount of the home equity line of credit that the borrower is requesting at closing (up to, but never exceeding, the credit line amount). |
| Installment Loan | Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan. |
| Insurable Title | A property title that a title insurance company agrees to insure against defects and disputes. |
| 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. |
| Insured Mortgage | A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount. |
| Interest | The amount a lender charges to a borrower to borrow money. |
| Interest Accrual Rate | The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments. |
| Interest Payment | The portion of a monthly payment that goes to interest based on the amortization schedule. |
| Interest Rate | The percentage rate of return charged for use of a specified amount of money. This percentage rate is specified in the mortgage note. |
| Interest Rate Buydown Plan | A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan. |
| Intial Interest Rate | The starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. At the end of the effective period for the initial rate, the interest rate adjusts periodically during the life of the loan based on changes in a specified financial index. Sometimes known as "start rate," "intro rate" or "teaser rate.\ |
| Introductory Rate | The starting rate for a home equity loan or line of credit, usually a discounted rate, for a short period of time. See intial interest rate. |
| Investment Property | A property that is not occupied by the owner and is generally rented to a tenant to produce income. |
| Joint Tenancy | A form of co-ownership that gives each tenant equal undivided interest and rights in the property, including the right of survivorship. Contrast with tenancy in common and tenancy by the entirety. |
| Judgement | A decree by a court law that one person, a debtor, is indebted to another, a creditor, in a specified amount. The court may place a lien against the debtor's real property as collateral for payment of the judgement to the creditor. |
| Judgment Lien | A lien on the property of a debtor resulting from a judgement. |
| Judicial Foreclosure | A type of foreclosure proceeding used in some states that is handled as a civil lawsuit where the court confirms the sales price for the property and the distribution of the sale proceeds. |
| Jumbo Loan | Any loan amount in excess of $252,700. Also called a non-conforming loan. |
| Late Charge | The penalty a borrower must pay when a payment is made a stated number of days (usually 10-15) after the due date. |
| Lease | A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may use the real estate for a specified period of time and the amount of rent to be paid. |
| Leasehold | This is the ownership of property and land for a specified period, which may be sold separately from freehold. The individual leasing does not have a fee simple interest in the property. |
| Leasehold Estate | A tenant's interest in or right to hold possession of a property. |
| Legal Description | A property description, recognized by law, using a government rectangular survey, metes and bounds, or a plot map to sufficiently locate and identify a property. |
| Lender's Fees | Fees paid to the lender to cover costs associated with processing, underwriting and closing of the loan. |
| Lending Guidelines | Every loan program has different guidelines. Guidelines are used to meet Federal, State, and Local laws and enforce minimum requirements by the lender. Guidelines ensure that prospective borrowers won't purchase a home that they won't be able to afford. |
| Liabilities | A person's debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims. |
| Liability Insurance | Insurance coverage that offers protection against claims alleging that a property owners negligence or inappropriate action resulted in bodily injury or property damage to another party. |
| Lien | A legal claim against a property that must be paid off when the property is sold. A lien is created when you borrow money to purchase or refinance a home loan. |
| Lifetime Rate Cap | For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. |
| Line of Credit | An agreement by a lender to extend credit up to a certain amount for a certain time without the need for the borrower to file another application. |
| Line/Loan Amount | The entire HELOC or Fixed Rate Second mortgage loan amount. |
| Liquid Asset | A cash asset or an asset that is easily converted into cash. |
| Loan Amount | The amount of money you want to borrow to purchase or refinance a home. Also called the principal and is generally repaid over time with interest. |
| Loan Commitment | A lender's agreement to advance money on specified terms after specified conditions are met. |
| Loan Origination | The process by which a mortgage lender makes a home loan and records a mortgage against the borrower's real property as security for repayment of the loan. |
| Loan Origination Fee | A charge levied by a creditor for underwriting a loan. The fee is often expressed in points. A point is 1 percent of the loan amount.
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| Loan Program | Typically a lender will have several types of loan programs available. They are described in accordance with the major features of the loan program. For example, a loan described as a "Fixed 30 Year" would mean that the interest rate and payment remain fixed over the thirty year life of the loan. A program described as "Fixed/ARM 5/1" means that the interest rate and payment remain fixed for the first five years, and then it is subject to adjustments every year thereafter. |
| Loan-To-Value Ratio | The ratio of the total amount borrowed on a mortgage against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage on a home with an appraised value of $100,000, the LTV is 80% ($80,000/$100,000 = 80%). |
| Lock-In | A written agreement in which the lender guarantees a specified loan program interest rate and points if a mortgage goes to closing closing within a set period of time. |
| Lock-In-Period | The time period during which the lender has guaranteed an interest rate to the borrower. |
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| Margin | The number of percentage points a lender adds to the index rate to calculate an adjustable rate mortgage’s interest rate at each adjustment period. |
| Master Association | A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project. |
| Maturity | The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable. At the maturity of a 30-yr loan the principal balance will be paid in full. |
| Maximum Financing | The maximum amount a lender will lend on a specific laon program. |
| Maximum Rate | The maximum interest rate that can accrue on a variable rate loan. |
| Merged Credit Report | A credit report that contains information from more than one credit reporting agency. When the report is created, the information is to find inconsistencies and duplicate entries. Any duplicates are combined to provide a summary of your credit. |
| Minimum Payment | The minimum amount that must be paid monthly on an account. On the HELOC product, the minimum payment is interest only during the draw period. On the Fixed Rate Second products, the minimum amount is principal and interest. |
| Modification | The act of changing any of the terms of the mortgage. |
| Money Market Account | A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account. |
| Money Market Fund | A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposits and Treasury bills. |
| Monthly Debt | A borrower's monthly expenses including credit cards, installment loans, student loan payments, alimony and child support and housing payment expense. |
| Monthly Mortgage Insurance (MI) Payment | Portion of monthly payment that covers the cost of Private Mortgage Insurance. |
| Monthly Payment (P&I) | This is the monthly mortgage payment on a home loan, this includes principal and interest, but excludes any amounts that are applied to taxes and insurance. |
| Monthly Principal & Interest (P&I) Payment | Portion of monthly payment that covers the principal and and interest due on the loan. |
| Monthly Taxes and Insurance (T&I) Payment | Portion of monthly payment that funds the escrow or impound account for taxes and insurance. |
| Mortgage | A mortgage is a method of using property (real or personal) as security for the payment of a debt. The term mortgage refers to the legal device used in securing the property, but it is also commonly used to refer to the debt secured by the mortgage, the mortgage loan.
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| Mortgage Banker | A company that originates, sells and services mortgages exclusively for resale in the secondary mortgage market. |
| Mortgage Broker | An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services. |
| Mortgage Insurance | A contract that insures the lender against loss caused by a borrower's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage amount. |
| Mortgage Insurance Premium (MIP) | The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company. |
| Mortgage Life Insurance | A type of term life insurance sometimes bought by borrowers. The amount of coverage decreases as the loan's principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. |
| Mortgagee | The lender in a mortgage agreement. |
| Mortgagor | The borrower in a mortgage agreement. |
| term | definition |
| Multi-Dwelling Units | Properties that provide separate housing units for more than one family, although they secure only a single mortgage. Typically a 2-4 unit property. |
| Negative Amortization | An increase in the outstanding balance of a mortgage that occurs when the monthly payment is not large enough to cover the interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization. |
| Net Cash Flow | The income that remains for an investment property after the monthly operating is reduced by the monthly housing expenses, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments. |
| Net Worth | The value of all of a person's assets, including cash, minus all liabilities. |
| No Closing Cost Loan | A loan in which the fees the borrower(s) are not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs. |
| Non-Conforming Loan | See Jumbo Loan. |
| Non-Liquid Asset | An asset that cannot easily be converted into cash. |
| Notary | An official authorized by law to attest and certify certain documents by his or her hand and official seal. |
| 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 interest rate stated on a mortgage note. |
| Notice of Default | A formal written notice to a borrower that a default has occurred and that legal action may be taken. |
| Original Principal Balance | The total amount of principal owed on a mortgage before any payments are made. |
| Origination Fee | A fee paid to a lender for processing a loan application, making a home loan, and recording a mortgage against the borrower's real property as security for repayment of the loan. The origination fee is stated in the form of points. One point is 1% of the mortgage amount (e.g., $1,000 on a $100,000 loan). |
| Owner Financing | A property purchase transaction in which the property seller provides all or a part of the financing and takes back a security instrument. |
| Partial Payment | A payment that is not sufficient to cover the scheduled monthly principal and interest payment on a mortgage loan. |
| Payment (P&I) | Your monthly mortgage payment, including principal and interest, but excluding tax and insurance payments. |
| Payment Change Date | The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date and the borrower is notified 30 days prior as to the new rate. |
| Payoff | To pay the outstanding balance of a loan in full. |
| Periodic Payment Cap | A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period. |
| Periodic Rate Cap | Same thing as the Periodic Payment Cap, but a limit (cap) is set on how high or low the interest rate can go. |
| Personal Property | Any property that is not real property or is not permanently fixed to land. Cash, furniture, and cars are all examples of personal property. |
| Piggyback | A combination of two loans. Example: A loan is made for 90% of the home price. 80% of the purchase price is supplied by a 1st mortgage and 10% by a 2nd mortgage. The 2nd mortgage is piggybacked on the 1st. |
| PITI | An abbreviation for the parts of a typical monthly mortgage payment. PITI stands for Principal-Interest-Taxes-Insurance. |
| 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 principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months. |
| Planned Unit Development | See PUD. |
| Pledge | The borrower gives up possession of the property being used as collateral for the loan (similar to how a pawn shop works). |
| PMI | Private mortgage insurance (PMI) is an insurance policy the borrower buys to protect the lender from non-payment of the loan. PMI policies are usually required if you make a down payment that is below 20% of the sales price of the home. |
| Points (Loan Discount Points) | Points are prepaid interest on your mortgage. A one-time fee charged by the lender at the time of closing for the origination of your loan. Each point is 1% of the total loan amount. |
| Power of Attorney | A legal document authorizing one person to act on another's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time. |
| Pre-Approval | A lender's conditional agreement to lend a specific amount on specified terms to a homebuyer (subject to satisfactory appraisal and no change in financial condition). You can shop with assurance, because you know up front how much of a loan you've been approved for. |
| Pre-Paid Interest | Mortgage interest that is paid in advance of when it is due. |
| Pre-Paid Items (Prepaids) | Items required by the lender to be paid at closing prior to the period they cover such as prorated property tax, homeowners insurance and pre-paid interest. |
| Pre-Qualification | A preliminary analysis of a borrower's ability to afford the purchase of a home. An affordability analysis takes into consideration factors such as income, liabilities, and available funds, along with the type of home loan, the likely taxes and insurance for the home, and the estimated closing costs. |
| Preforeclosure Sale | A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property; typically for less than the amount that is owed to the lender. |
| Prepayment | Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized. |
| Prepayment Penalty | A fee that may be charged to a borrower who pays off a loan before it is due. Generally, a prepayment penalty is added to a loan in exchange for a discounted rate. |
| Primary Residence | The place where you live the most of the time. |
| Prime Rate | The interest rate that banks charge on short-term loans to its most creditworthy customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates. |
| Principal | The amount borrowed for a mortgage. The principal balance does not include interest or any other charges. |
Principal, Interest, Taxes & Insurance
(PITI) | Four potential components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that may be paid into an escrow account each month for property taxes and mortgage and hazard insurance. |
| Principal Balance | The outstanding balance on a mortgage. The principal balance does not include interest or any other charges. |
| Principal Payment | Portion of your monthly payment that reduces the remaining balance of a home loan. |
| Private Mortgage Insurance | This is a form of insurance the lender has the borrower take for loans over 80% of the appraised value. This protects the bank by giving them some built in equity in case of foreclosure. |
| Private Mortgage Insurance (PMI) | Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against a loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80%. |
| Processing | The preparation and documentation of a mortgage loan application for underwriting. |
| Promissory Note | A written promise to repay a specified amount over a specified period of time. |
| Property Value | LTV or Loan to Value Ratio refers to the relationship between the unpaid principal balance of the mortgage and the property's appraised value (or sales price if it is lower). |
| Public Auction | A meeting in an announced public location to sell property to repay a mortgage that is in default. |
| 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 the individual PUD unit owners. |
| 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 Transaction | A loan used in part as payment for a purchase. A loan that is used to buy a home is called a purchase money mortgage. |
| Purchase Price | The total amount paid for a home. |
| Qualifying Ratios | Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio. |
| Quit Claim Deed | A deed that transfers, without warranty of ownership, whatever interest or title a grantor may have at the time the conveyance is made. |
| Rate | This is the annual interest rate applied to the outstanding balance of the loans. |
| Rate Lock | A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time. |
| Rate Reduction Option | A fixed-rate mortgage that includes a provision that gives the borrower an option to reduce the interest rate (without refinancing) at a later date. It is similar to a prearranged refinancing agreement, except that it does not require re-qualifying. |
| Real Estate Agent | A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction. |
Real Estate Settlement Procedures Act
(RESPA) | A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred. |
| Real Property | Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof. |
| Realtor? | A real estate broker or an associate who holds active membership in a real estate board that is affiliated with the National Association of Realtors. |
| Recorder | The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk.\ |
| Recording | Filing a document in the public records, thereby giving condstructive notice to the public of the existence of the document and its contents. |
| Reduced Documentation | A method used to determine income when qualifying a borrower for a loan. Borrowers provide their income, however no verification documentation is typically required. |
| Refinance Transaction | The process of paying off one loan with the proceeds from a new loan, typically using the same property as security for the new loan. |
| Rehabilitation Mortgage | A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property. |
| Remaining Balance | The amount of principal that has not yet been repaid. |
| Remaining Term | The original amortization term minus the number of payments that have been applied. |
| Rent With Option To Buy | See lease-purchase mortgage loan. |
| Repayment Plan | An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are often called "relief provisions.\ |
| Request For Notice of Default | A recorded document that obligates the holder of the first mortgage lien to notify subordinate lien holders in the event of default by the borrower. |
| Rescission | The act of cancellation or annulment of a transaction or contract by the operation of a law. Borrowers usually have the option to cancel certain credit transactions, including a refinance or home equity transaction, within three business days after consummation (when the consumer becomers contractually obligated by, for example, signing the loan documents). |
| Revolving Liability | A credit arrangement, such as a credit card or HELOC, that allows a customer to borrow against a predetermined line of credit when purchasing goods and services. The borrower makes payments on the amount that is actually borrowed plus any interest due. |
| Right of First Refusal | A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others. |
| Right of Ingress or Egress | The right to enter or leave designated premises. |
| Right of Survivorship | In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant. |
| Rural Hosuing Service (RHS) | An agency within the Department of Agriculture. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury. |
| Sale-Lease Back | A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller. |
| Second Home | A property occupied part-time by a person in addition to his or her primary residence. |
| Second Mortgage | A mortgage that has a lien position subordinate to the first mortgage. |
| Secondary Mortgage Market | A informal market where lenders and investors buy and sell existing mortgages. Government-sponsored entities and private investors buy mortgages from lenders who use the proceeds to make additional loans. |
| Secured Loan | A loan that is backed by collateral. If the borrower defaults, the lender can sell the collateral to satisfy the debt. |
| Security | The property that will be pledged as collateral for the loan. The borrower defaults, the lender can sell the collateral to satisfy the debt. |
| Security Interest | An interest the lender takes in the borrower's property to assure repayment of a debt. If the borrower defaults, the lender can sell the collateral to satisfy the debt. |
| Seller Take-Back | An agreement in which the owner of the property provides financing, often in combination with an assumable mortgage. See owner financing. |
| Servicer | An organization that collects principal and interest payments from borrowers and manages borrower's tax and insurance escrow accounts. A mortgage banker is often paid a fee to service mortgages that have been purchased by an investor in the secondary mortgage market. |
| Servicing | The collection of principal and interest payments from borrowers and management of borrowers' tax and insurance escrow accounts. |
| Settlement Sheet | See HUD-1 settlement statement. |
| Single Family Residence | A residential structure designed to include one dwelling. |
| Special Deposit Account | An account that is established for rehabilitation mortgages to hold the funds needed for the rehabilitation work so they can be dispursed from time to time as particular portions of the work are completed. |
| Stand Alone | A Home Equity loan originated without obtaining a Countrywide first mortgage at the same time. |
| Start Date | The date you want to use as the start date for the amortization, usually the date you closed on your loan or today's date. |
| Start Month | The date you will begin adding an extra dollar amount to your regular monthly payments. Enter the payment number from 1 to 360 (e.g., if you will start paying extra principal at the start of year 5 of a 30 year loan, enter "49".) |
| Sub-Escrow | Fees charged by the escrow company for allowing the borrower to be able to sign all the loan documents in the Escrow office instead of having to go to the lender's office. |
| Subdivision | A housing development that is created by dividing a tract of land into individual lots for sale or lease. |
| Subordinate Financing | Any mortgage or other lien that has a priority that is lower than that of the first mortgage. The subordinate loan has a claim to payment in a foreclosure only after the first mortgage is paid. |
| Subprime | Subprime lending is also called B&C lending. It refers to a category of loan programs that offer more lenient underwriting provisions and expanded credit guidelines. These provisions allow more flexibility in approving loans for borrowers who have less-than-perfect credit. Subprime loans are available at various interest rates and terms. They also offer capabilities for debt consolidation allowing borrowers to get a mortgage with enough extra cash to consolidate loans. |
| Subsidized Second Mortgage | An alternative financing option known as the Community Seconds? mortgage for low- and moderate-income households. An investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, local housing agency, foundation, or non-profit corporation. Payment on the second mortgage is often deferred and carries a low interest rate (or no interest rate). Part or all of the second mortgage debt may be forgiven depending on how long the buyer remains in the home. |
| Survey | A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. |
| Sweat Equity | Contribution to the construction or rehabilitation of a property in the form of labor or services performed personally by the owner. |
| term | definition |
| Tax Savings | This is the amount of money you save in income taxes. You save this money because because in most cases the interest you pay on your home loan is tax deductible. |
| Tax Service | A fee collected to set up a third-party to monitor the borrower's property tax payments to make sure the payments are made on time, and to prevent rax liens from occurring. |
| Tenancy By The Entirety | A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. If one spouse dies the property goes to the other spouse |
| Tenancy In Common | A type of joint tenancy in a property without rights of survivorship. |
| Term | The term of a home loan is the number of years the home loan is amortized for. Home loans are generally amortized over 15, 20 or 30 years. |
| Termite Report | A report that results from an inspection by a professional to determine if a property has termites. |
| Third Party Fees | Fees collected by a lender for services provided by other companies, such as an appraiser. |
| Third Party Origination | A process by which a lender uses another party to completely partially originate, process, underwrite, close, fund, or package the home loan. |
| Title | A legal document evidencing a person's right to ownership of a property. |
| Title Company | A company that specializes in examiming and insuring titles to real estate. |
| Title Insurance | Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property. |
| Title Insurance Endorsements | This is an endorsement of insurance against losses that may result from claims of previously unknown ownership in insured property. |
| Title Search | A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding. |
| Total Expense Ratio | Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts. Used to help qualify a potential buyer for a home loan. |
| Total Monthly Payment | See monthly PITI payment. |
| Transaction Fee | A fee charged each time the borrower draws on the credit line. |
| Transfer of Ownership | Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, 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 title passes from one owner to another. |
| Treasury Index | An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. |
| Trustee | A fiduciary who holds or controls property for the benefit of another. |
| Truth-in-Lending | A federal law that requires lenders to fully disclose, in writing, the terms and conditions of credit, such as a mortgage, including the annual percentage rate (APR) and other charges. |
| Two to Four-Family Property | A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed. |
| Underwriting | The analysis of risk, the determination of the appropriate loan amount, and the setting of loan terms and conditions, based on the borrower's creditworthiness and the value of the real property that will secure the loan. |
| Unsecured Loan | A loan that is not backed by collateral. |
| VA Loan | The VA does not lend money, rather it guarantees a portion of the loan to help lenders feel more comfortable about the risk they are taking. VA-guaranteed loans can be combined with second mortgages and are assumable upon qualifying. An individual must have served in the armed forces to qualify for a VA loan. |
| VA Mortgage | A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage. |
| Variable Rate | An interest rate that changes periodically in relation to an index. Payments may increase or decrease per the terms of the loan agreement or note. |
| Vested | Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn. |
| Veteran Affairs, Department of (VA) | An agency if the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans. |
| Warehouse | A closing-cost fee representing the lender's cost of holding a borrower's loan temporarily prior to being sold on the secondary mortgage market. |
| Year Acquired | The date you acquired your existing mortgage, used to determine your remaining balance. |
| Year-End Statement | A report sent to the borrower each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage balance at the end of the year. |
| "No Out Of Pocket Cost" Loan | A loan in which the fees the borrower(s) are not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs. |
Real Estate Glossary 
