Select the first letter of the word from the list below to jump to the appropriate
section of the glossary.
ABCDEFGHIJKLMNOPQRSTUVWXYZ
-A-
- abstract of
title
-
A historical summary provided by a title insurance company of
all records affecting the title to a property.
- acceleration
clause
- Allows a lender to declare the entire outstanding balance of a loan immediately
due and payable should a borrower violate specific loan provisions or default on
the loan.
- adjustable rate mortgage
(ARM)
- A variable or flexible rate mortgage with an interest rate that varies according
to the financial index it is based upon. To limit the borrower's risk, the ARM
may have a payment or rate cap. See also: cap.
- amenities
- Features of your home that fit your preferences and can increase the value of
your property. Some examples include the number of bedrooms, bathrooms, or
vicinity to public transportation.
- amortization
- The liquidation of a debt by regular, usually monthly, installments of principal
and interest. An amortization schedule is a table showing the payment amount,
interest, principal and unpaid balance for the entire term of the loan.
- annual cap
- See: cap.
- annual percentage rate
(A.P.R.)
- The actual interest rate, taking into account points and other finance charges,
for the projected life of a mortgage. Disclosure of APR is required by the
Truth-in-Lending Law and allows borrowers to compare the actual costs of
different mortgage loans.
- appraisal
- An estimate of a property's value as of a given date, determined by a qualified
professional appraiser. The value may be based on replacement cost, the sales of
comparable properties or the property's ability to produce income.
- appreciation
- A property's increase in value due to inflation or economic factors.
- A.P.R.
- See: annual percentage rate.
- ARM
- See: adjustable rate mortgage.
- assessment
- Charges levied against a property for tax purposes or to pay for municipality or
association improvements such as curbs, sewers, or grounds maintenance.
- assignment
- The transfer of a contract or a right to buy property at given rates and terms
from a mortgagee to another person.
- assumption
- An agreement between a buyer and a seller, requiring lender approval, where the
buyer takes over the payments for a mortgage and accepts the liability. Assuming
a loan can be advantageous for a buyer because there are no closing costs and
the loan's interest rate may be lower than current market rates. Depending on
what is in the mortgage or deed of trust, the lender may raise the interest
rate, require the buyer to qualify for the mortgage, or not permit the buyer to
assume the loan at all.
Go to Top
- B -
- balloon
mortgage
- Mortgage with a final lump sum payment that is greater than preceding payments
and pays the loan in full.
-
- biweekly
mortgage
- A loan requiring payments of principal and interest at two-week intervals. This
type of loan amortizes much faster than monthly payment loans. The payment for a
biweekly mortgage is half what a monthly payment would be.
- bond
- A certificate serving as security for payment of a debt. Bonds backed by
mortgage loans are pooled together and sold in the secondary market.
- bridge loan
- A loan to "bridge" the gap between the termination of one mortgage and
the beginning of another, such as when a borrower purchases a new home before
receiving cash proceeds from the sale of a prior home. Also known as a swing
loan.
- broker
- An intermediary between the borrower and the lender. The broker represents the
borrower to get the best deal.
-
- buy-down
- Where the buyer pays additional discount points or makes a substantial down
payment in return for a below market interest rate; or the seller offers 3-2-1
interest payment plans or pays closing costs such as the origination fee. During
times of high interest rates, buy-downs may induce buyers to purchase property
they may not otherwise have purchased.
Go to Top
- C -
- cap
- A limit in how much an adjustable rate mortgage's monthly payment or interest
rate can increase. A cap is meant to protect the borrower from large increases
and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap.
A payment cap is a limit on the monthly payment. An interest
cap is a limit on the amount of the interest rate. A life-of-loan
cap restricts the amount the interest rate can increase over the
entire term of the loan. An annual cap limits the amount the
interest rate can increase over a twelve-month period.
- certificate of reasonable
value (CRV)
- A Veteran's Administration appraisal that establishes the maximum VA mortgage
loan amount for a specified property.
- certificate of
title
- Document rendering an opinion on the status of a property's title based on
public records.
- closed-end
mortgage
- A mortgage principal amount that is fixed and cannot be increased during the
life of the loan. See also: open-end mortgage.
- closing costs
- Costs payable by both seller and buyer at the time of settlement, when the
purchase of a property is finalized. These costs can be up to ten percent of the
mortgage amount and usually include but are not limited to the following:
-
Fees Paid to the Lender
- Origination fee
- Discount points
- Credit report fee
- Appraisal fee
- Assumption fee if loan is assumed
Fees Paid in Advance
- Interest from the closing date to the beginning of the
1st payment
- Hazard insurance premium
- Mortgage insurance premium
Other Charges
- Title search and title insurance
- Sales commissions
- Legal and recording fees
- Inspection and survey fees
- Property taxes and other adjustments
- Processing and document preparation fees
- cloud
- A claim to the title of a property that, if valid, would prevent a purchaser
from obtaining a clear title.
- collateral
- Something of value pledged as security for a loan. In mortgage lending, the
property itself serves as collateral for a mortgage loan.
- commitment fee
- A fee charged when an agreement is reached between a lender and a borrower for a
loan at a specific rate and points and the lender guarantees to lock in that
rate.
- co-mortgagor
- One who is individually and jointly obligated to repay a mortgage loan and
shares ownership of the property with one or more borrowers. See also: co-signer.
- condominium
- An individually owned unit within a multi-unit building where others or the
Condominium Owners Association share ownership of common areas such as the
grounds, the parking facilities and the tennis courts.
- conforming loan
- A loan that conforms to Federal National Mortgage Association (FNMA) or Federal
Home Loan Mortgage Corporation (FHLMC) guidelines.
- See also: non-conforming loan.
- construction
loan
- A short-term loan financing improvements to real estate, such as the building of
a new home. The lender advances funds to the borrower as needed while
construction progresses. Upon completion of the construction, the borrower must
obtain permanent financing or pay the construction loan in full.
- consumer handbook
on adjustable rate mortgages (C.H.A.R.M.)
- A disclosure required by the federal government to be given to any borrower
applying for an adjustable rate mortgage (ARM).
- conventional
loan
- A mortgage loan that is not insured, guaranteed or funded by the Veterans
Administration (VA), the Federal Housing Administration (FHA) or Rural Economic
Community Development (RECD) (formerly Farmers Home Administration).
- convertible
mortgage
-
An adjustable rate mortgage (ARM) that allows a borrower to switch to a
fixed-rate mortgage at a specified point in the loan term.
- co-signer
- One who is obligated to repay a mortgage loan should the borrower default but
who does not share ownership in the property. See also: co-mortgagor.
- covenants
- Rules and restrictions governing the use of property.
- CRV
- See: certificate of reasonable
value.
- curtailments
- The borrower's privilege to make payments on a loan's principal before they are
due. Paying off a mortgage before it is due may incur a penalty if so specified
in the mortgage's prepayment clause.
Go to Top
- D -
- debt
- Money owed to repay someone.
- debt-to-income
ratio
- The ratio between a borrower's monthly payment obligations divided by his or her
net effective income (FHA or VA loans) or gross monthly income (conventional
loans).
- deed of trust
- A document, used in many states in place of a mortgage,
held by a trustee pending repayment of the loan. The advantage of a deed of
trust is that the trustee does not have to go to court to proceed with
foreclosure should the borrower default on the loan.
- Department of
Housing and Urban Development (HUD)
- The U.S. government agency that administers FHA, GNMA and other housing
programs.
- discount points
- Amounts paid to the lender based on the loan amount to buy the interest rate
down. Each point is one percent of the loan amount; for example, two points on a
$100,000 mortgage is $2,000.
- down payment
- The difference between the purchase price and mortgage amount. The down payment
becomes the property equity. Typically it should be cash savings, but it can
also be a gift that is not to be repaid or a borrowed amount secured by assets.
- due-on-sale
- A clause in a mortgage or deed of trust allowing a lender to require immediate
payment of the balance of the loan if the property is sold (subject to the terms
of the security instrument).
- duplex
- Dwelling divided into two units.
Go to Top
- E -
- earnest money
- Deposit in the form of cash or a note, given to a seller by a buyer as good
faith assurance that the buyer intends to go through with the purchase of a
property.
- easement
- The right one party has in regard to the property of another, such as the right
of a public utility company to lay lines.
- Equal Credit Opportunity
Act
- A federal law prohibiting lenders and other creditors from discrimination based
on race, color, sex, religion, national origin, age, marital status, receipt of
public assistance or because an applicant has exercised his or her rights under
the Consumer Credit Protection Act.
- equity
- The value of a property beyond any liens against it. Also referred to as owner's interest.
- escape clause
- A provision allowing one party or more to cancel all or part of the contract if
certain events fail to happen, such as the ability of the buyer to obtain
financing within a specified period.
- escrow
- Money placed with a third party for safekeeping either for final closing on a
property or for payment of taxes and insurance throughout the year.
Go to Top
- F -
- fair market
value
- The price a property can realistically sell for, based upon comparable selling
prices of other properties in the same area.
- Fannie Mae
- Nickname for Federal National Mortgage Association (FNMA).
- Federal
Home Loan Mortgage Corporation (FHLMC or Freddie
Mac)
- A quasi-governmental, federally-sponsored organization that acts as a secondary market investor to buy and sell
mortgage loans. FHLMC sets many of the guidelines for conventional mortgage
loans, as does FNMA.
- Federal Housing
Administration (FHA)
- An agency within the Department of Housing and Urban Development that sets
standards for underwriting and insures residential mortgage loans made by
private lenders. One of FHA's objectives is to ensure affordable mortgages to
those with low or moderate income. FHA loans may be high loan-to-value, and they
are limited by loan amount. FHA mortgage insurance requires a fee of 1.5 percent
of the loan amount to be paid at closing, as well as an annual fee of 0.5
percent of the loan amount added to each monthly payment.
- Federal National
Mortgage Association (FNMA or Fannie Mae)
- A private corporation that acts as a secondary market investor to buy and sell
mortgage loans. FNMA sets many of the guidelines for conventional mortgage
loans, as does FHLMC. The major purpose of this organization is to make mortgage
money more affordable and more available.
- fee simple
- The maximum form of ownership, with the right to occupy a property and sell it
to a buyer at any time. Upon the death of the owner, the property goes to the
owner's designated heirs. Also known as fee absolute.
- FHA
- See: Federal Housing Administration.
-
- fifteen-year
mortgage
- A loan with a term of 15 years. Although the monthly payment on a 15-year
mortgage is higher than that of a 30-year mortgage, the amount of interest paid
over the life of the loan is substantially less.
- fixed-rate
mortgage
- A mortgage whose rate remains constant throughout the life of the mortgage.
- flood insurance
- The Federal Flood Disaster Protection Act of 1973 requires that
federally-regulated lenders determine if real estate to be used to secure a loan
is located in a Specially Flood Hazard Area (SFHA). If the property is located
in a SFHA area, the borrower must obtain and maintain flood insurance on the
property. Most insurance agents can assist in obtaining flood insurance.
- FNMA
- See: Federal National Mortgage Association.
- Freddie Mac
- Nickname for Federal Home Loan Mortgage Corporation (FHLMC).
Go to Top
- G -
- gift
- This includes amounts from a relative or a grant from the borrower's employer, a
municipality, non-profit religious organization, or non-profit community
organization that does not have to be repaid.
- Ginnie Mae
- Nickname for Government National Mortgage Association (GNMA).
- good faith
estimate
- Estimate on closing costs and monthly mortgage payments provided by the lender
to the homebuyer within 3 days of applying for a loan.
- Government
National Mortgage Association (GNMA or Ginnie Mae)
- A government organization that participates in the secondary market, securitizing pools of FHA,
VA, and RHS loans.
- graduated payment mortgage
(GPM)
- A fixed-interest loan with lower payments in the early years than the later
years. The amount of the payment gradually increases over a period of time and
then levels off at a payment sufficient to pay off the loan over the remaining
amortization period.
-
Go to Top
- H -
- hazard
insurance
- A form of insurance that protects the insured property against physical damage
such as fire and tornadoes. Mortgage lenders often require a borrower to
maintain an amount of hazard insurance on the property that is equal at least to
the amount of the mortgage loan.
- home equity
loan
- A mortgage on the borrower's principal residence, usually for the purpose of
making home improvements or debt consolidation.
- home inspection
- A thorough review of the physical aspects and condition of a home by a
professional home inspector. This inspection should be completed prior to
closing so that any repairs or changes can be completed before the home is sold.
- homeowners
insurance
- A form of insurance that protects the insured property against loss from theft,
liability and most common disasters.
- Housing and Urban
Development (HUD)
- The U.S. government agency that administers FHA, GNMA and other housing
programs.
- housing
affordability index
- Indicates what proportion of homebuyers can afford to buy an average-priced home
in specified areas. The most well known housing affordability index is published
by the National Association of Realtors.
- housing expenses-to-income
ratio
- See: debt-to-income ratio.
- HUD
- See: Housing and Urban Development.
Go to Top
- I -
- income
approach to value
- A method used by real estate appraisers to predict a property's anticipated
future income. Income property includes shopping centers, hotels, motels,
restaurants, apartment buildings, office space and so forth.
- income-to-debt
ratio
- See: debt-to-income ratio.
- index
- A published interest rate compiled from other indicators such as U.S. Treasury
bills or the monthly average interest rate on loans closed by savings and loan
organizations. Mortgage lenders use the index figure to establish rates on
adjustable rate mortgages (ARMs).
- insurance
- As a part of PITI, the amount of the monthly mortgage payment that does
not include the principal, interest, and taxes.
- Also see: homeowners insurance.
- interest
- The amount of the entire mortgage loan which does not include the
principal. Also, as a part of PITI, the amount of the monthly
mortgage payment which does not include the principal, taxes, and insurance.
- interest cap
- See: cap
- interest rate
- The simple interest rate, stated as a percentage, charged by a lender on the
principal amount of borrowed money. See also: Annual Percentage Rate.
Go to Top
- J -
- joint tenancy
- See: tenancy.
- jumbo loan
- A nonconforming loan that is larger than the limits set by the Federal National
Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)
guidelines.
Go to Top
- K -
- key lot
- Real estate deemed highly valuable because of its location.
Go to Top
- L -
- lien
- A claim against a property for the payment of a debt. A mortgage is a lien;
other types of liens a property might have include a tax lien for overdue taxes
or a mechanics lien for unpaid debt to a subcontractor.
- life-of-loan
cap
- See: cap.
- liquidity
- The capability of an asset to be readily converted into cash.
- loan discount
- See: points.
- loan
origination fee
- See: origination fee.
- loan-to-value
ratio (LTV)
- The relationship, expressed as a percentage, between the amount of the proposed
loan and a property's appraised value. For example, a $75,000 loan on a property
appraised at $100,000 is a 75% loan-to-value.
- lock-in
- The guarantee of a specific interest rate and/or points for a specific period of
time. Some lenders will charge a fee for locking in an interest
rate.
Go to Top
- M -
- maintenance
costs
- The cost of the upkeep of the house. These costs may be minor in cost and nature
(replacing washers in the faucets) or major in cost and nature (new heating
system or a new roof) and can apply to either the interior or exterior of the
house.
- margin
- The amount a lender adds to the index of an adjustable rate mortgage to
establish an adjusted interest rate. For example, a margin of 1.50 added to a 7
percent index establishes an adjusted interest rate of 8.50 percent.
- market value
- The price a property can realistically sell for, based upon comparable selling
prices of other properties in the same area.
- modification
- A change in the terms of the mortgage note, such as a reduction in the interest
rate or change in maturity date.
- mortgage
- A legal instrument in which property serves as security for the repayment of a
loan. In some states, a deed of trust is used rather than a mortgage.
- mortgage banker
- A lender that originates, closes, services and sells mortgage loans to the secondary market.
- mortgage broker
- An intermediary between a borrower and a lender. A broker's expertise is to help
borrowers find financing that they might not otherwise find themselves.
- mortgage
insurance
- Money paid to insure the lender against loss due to foreclosure or loan default.
Mortgage insurance is required on conventional loans with less than a 20 percent
down payment. FHA mortgage insurance requires a payment of 1.5 percent of the
loan amount to be paid at closing, as well as an annual fee of 0.5 percent of
the loan amount added to each monthly payment.
- mortgage
interest
- Interest rate charge for borrowing the money for the mortgage. It is a used to
calculate the interest payment on the mortgage each month.
- mortgage term
- The length of time that a mortgage is scheduled to exist. Example: a 30-year
mortgage term is for 30 years.
- mortgagee
- The lender.
- mortgagor
- The borrower.
Go to Top
- N -
- negative amortization
- A situation in which a borrower is paying less interest than what is actually
being charged for a mortgage loan. The unpaid interest is added to the loan's
principal. The borrower may end up owing more than the original amount of the
mortgage.
- non-assumption
clause
- In a mortgage contract, a statement that prohibits a new buyer from assuming a
mortgage loan without the approval of the lender.
- non-conforming
loan
- A loan that does not conform to Federal National Mortgage Association (FNMA) or
Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are
nonconforming.
- See also: conforming loan.
- note
- A signed document that acknowledges a debt and shows the borrower is obligated
to pay it.
Go to Top
- O -
- open-end
mortgage
- A mortgage allowing the borrower to receive advances of principal from the
lender during the life of the loan. See also: closed-end mortgage.
- origination fee
- The amount charged by a lender to originate and close a mortgage loan.
Origination fees are usually expressed in points.
Go to Top
- P -
- payment cap
- See: cap.
- P&I
- Abbreviation for principal and interest.
- PITI
- Abbreviation for principal, interest, taxes and insurance.
- points
- Charges levied by the lender based on the loan amount. Each point equals one
percent of the loan amount; for example, two points on a $100,000 mortgage is
$2,000. Discount points are used to buy down the interest rate. Points can also
include a loan origination fee, which is usually one point.
- pre-qualification
- Tentative establishment of a borrower's qualification for a mortgage loan amount
of a specific range, based on the borrower's assets, debts, and income.
- prime rate
- The interest rate commercial banks charge their most creditworthy customers.
- principal
- The amount of the entire mortgage loan, not counting interest. Also,
as a part of PITI, the amount of the monthly mortgage payment which does
not include the interest, insurance, and taxes.
- private
mortgage insurance (PMI)
- See: mortgage insurance.
- property
appraisal
- See: appraisal.
- property tax
- The amount which the state and/or locality assesses as a tax on a piece of
property.
- prorate
- To proportionally divide amounts owed by the buyer and the seller at closing.
Go to Top
- Q -
- qualification
- As determined by a lender, the ability of the borrower to repay a mortgage loan
based on the borrower's credit history, employment history, assets, debts and
income.
Go to Top
- R -
- rate cap
- See: cap.
- RESPA
- Abbreviation for the Real Estate Settlement Procedures Act, which allows
consumers to review settlement costs at application and once again prior to
closing.
- reverse
annuity mortgage
- A type of mortgage loan in which the lender makes periodic payments to the
borrower. The borrower's equity in the home is used as security for the loan.
- RHCDS
- Rural Housing and Community Service
- right of
first refusal
- Purchasing a property under conditions and terms made by another buyer and
accepted by the seller.
- right of
rescission
- When a borrower's principal dwelling is going to secure a loan, the borrower has
three business days following signing of the loan documents to rescind or cancel
the transaction. Any and all money paid by the borrower must be refunded upon
rescission. The right to rescind does not apply to loans to purchase real estate
or to refinance a loan under the same terms and conditions where no additional
funds will be added to the existing loan.
- rollover
- At the end of the construction loan period, the borrower's file is delivered to
Bank One Mortgage Loan Servicing Dept. Prior to delivery, CLD contacts the
borrower and obtains funds for the tax and insurance escrows, a final title
policy and homeowner's policy. This process is called a rollover.
- Rural Housing and Community Development
Service
- A federal agency that administers mortgage loans for buyers in rural areas.
Go to Top
- S -
- second mortgage
- A loan that is junior to a primary or first mortgage and often has a higher
interest rate and a shorter term.
- secondary
market
- A market comprising investors like GNMA, FHLMC and FNMA, which buy large numbers
of mortgages from the primary lenders and sell them to other investors.
-
- servicing
- The responsibility of collecting monthly mortgage payments and properly
crediting them to the principal, taxes and insurance, as well as keeping the
borrower informed of any changes in the status of the loan.
- settlement
costs
- See: closing costs.
- survey
- A physical measurement of property done by a registered professional showing the
dimensions and location of any buildings as well as easements, rights of way,
roads, etc.
Go to Top
- T -
- tax deed
- A written document conveying title to property repossessed by the government due
to default on tax payments.
- tax savings
- The amount of money that the homeowner is not required to pay the government in
taxes because he or she owns a home.
- taxes
- As a part of PITI, the amount of the monthly mortgage payment which does
not include the principal, interest, and insurance.
- tenancy
-
- joint tenancy - equal ownership of property by two or
more parties, each with the right of survivorship.
- tenancy by the entireties - ownership of property only
between husband and wife in which neither can sell without the consent
of the other and the property is owned by the survivor in the event of
death of either party.
- tenancy in common - equal ownership of property by two
or more parties without the right of survivorship.
- tenancy in severalty - ownership of property by one
legal entity or a sole party.
- tenancy at will - a license to use or occupy a property
at the will of the owner.
- title
- A formal document establishing ownership of property.
- title insurance
- A policy issued by a title insurance company insuring the purchaser against any
errors in the title search. The cost of title insurance may be paid for by the
buyer, the seller or both.
- trust deed
- See: deed of trust.
- Truth In Lending
Act
- The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate
and other associated costs to homebuyers within three working days of the loan
application.
Go to Top
- U -
- underwriter
- A professional who approves or denies a loan to a potential homebuyer based on
the homebuyer's credit history, employment history, assets, debts and other
factors such as loan guidelines.
- Uniform Settlement
Statement
- A standard document prescribed by the Real Estate Settlement Procedures Act
containing information for closing which must be supplied to both buyer and
seller.
- utility costs
- Periodic housing costs for water, electricity, natural gas, heating oil, etc.
Go to Top
- V -
- VA loan
- See: Veterans Administration.
- vacation home
- See: secondary residence.
- variable rate mortgage
(VRM)
- See: adjustable rate mortgage.
-
- Veterans Administration
(VA)
- The federal agency responsible for the VA loan guarantee program as well as
other services for eligible veterans. In general, qualified veterans can apply
for home loans with no down payment and a funding fee of 1 percent of the loan
amount.
Go to Top
- W -
- walk-through
- An inspection of a property by the prospective buyer prior to closing on a
mortgage.
- warranty deed
- A document protecting a homebuyer against any and all claims to the property.
-
Go to Top
- X -
- No entries for "X".
Go to Top
- Y -
- yield
- The rate of earnings from an investment.
Go to Top
- Z -
- zoning
- The ability of local governments to specify the use of private property in order
to control development within designated areas of land. For example, some areas
of a neighborhood may be designated only for residential use and others for
commercial use such as stores, gas stations, etc.
Go to Top
