Glossary of Mortgage Terminology
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
-A-
Abstract - The abstract provides the written history of the ownership for that particular piece of land or parcel. The title binder is information gathered from the abstract.
Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate changes at certain intervals during the term of the loan.
Adjustment Period - The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A six-month ARM would have an adjustment every six months.
Amortization Schedule - A table that shows the principal changes of a mortgage balance on a monthly or annual basis.
Annual Percentage Rate (APR) - Calculation which standardizes rates, point, and other costs of a mortgage loan. This figure is disclosed as part of the truth-in-lending statement, which is required by the Federal Truth-In-Lending Act. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal - An estimate of value -- in this case for real property. For residential properties the appraiser would utilize the Uniform Residential Appraisal Report or URAR.
Assignment of Mortgage - A document used to transfer ownership of a mortgage from one party to another.
Assumption of a Mortgage - The document that changes the liability of the payment from the buyer to the seller. The seller can still be held liable for payments if the buyer defaults, unless the buyer is qualified for the loan and seller is removed from the title. The Assumption Agreement is the written agreement that is filed to perform the transaction. The Assumption Fee is the lender charged fee to process the transaction.
Attorney in Fact - This document allows one person to execute a legal document on behalf of another person. This document is often used when one person is court declared incompetent to make sound legal decisions on his/her own behalf.
-B-
Balloons - A loan with fixed rate payments for the first five to seven years of the loan then a lump sum payment is due on the balance of the loan at a specified date. The mortgage does not fully amortize over the term of the mortgage.
Bankruptcy - When an individual or business is unable to pay back creditors. The individual or business files bankruptcy with the courts, surrenders all assets to the court and is no longer obligated to repay any unsecured debts.
Beneficiary - The person who is named to receive benefits from, a retirement fund, life insurance policy or will.
Bi-weekly Mortgage - A mortgage with payments due every two weeks totaling 26 payments a year.
Binder - A title binder is a written commitment from the title insurance company to insure title to the property subject to conditions listed.
Building Restriction Line - The distance from the road within which no building may take place.
Buydown - A fee paid to lower the interest rate on a mortgage, the buyer, seller, or any other interested party may pay it. A permanent buydown would lower the rate for the entire term of the mortgage. A temporary buydown would lower the rate for a certain portion of the mortgage term, usually the first few years.
-C-
Capital Gains - The asset you gain when a property is sold for more than you owe on the loan.
Caps (Interest) - Consumer safeguards on the interest rate of an adjustable rate mortgage that limit the interest that can be charged per year and the life of the loan.
Caps (Payment) - Consumer safeguards the limit on how much the monthly mortgage payment of an adjustable rate mortgage may change.
Cash Flow - The income received on an income-producing property. The cash flow should be enough to cover all expenses insured from the property.
Certificate of Eligibility - A document given by the Veterans Administration to the veteran to verify his/her eligibility for a VA mortgage. Certificates of Eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).
Certificate of Title - A written confirmation by a title company or attorney that the property on title is legally vested to the present owner.
Certificate of Veteran Status - A document form completed by the Department of Veteran affairs to establish a veteran's eligibility for a FHA Vet Mortgage.
Chain of Title - The order of documents in which the title has been transferred from the original owner to the present owner.
Chapter 13 - A repayment plan on debt owed to creditors. A payment plan is setup for 3-5 years by the court to make partial payments to the creditors.
Chapter 7 - A form of bankruptcy that allows a trustee the power to distribute debtor's assets to creditors.
Class Action - A claim brought up on behalf of a group of people.
Clear Title - Title that is free of liens or defects.
Closed-End Mortgage - A mortgage where the debt cannot be increased.
Closing Costs - Fees and costs that both buyer and seller must pay at closing. They generally include origination fee, discount fee, appraisal fee, credit report, title search, recording fees and other costs described in the HUD I at settlement.
Collateral - A property pledged to secure a debt.
Commitment - A written agreement between lender and a borrower to loan money, at a future date, subject to specific conditions. A loan commitment would be an agreement to lend and represent another term for loan approval.
Combined Loan -To-Value - The principal balance of all mortgages on the property (including second and third mortgages) divided by the value of the property.
Comparables - Properties used to compare similar characteristics to determine value on a specific property.
Condominium - A type of property ownership in a multi-unit structure that combine joint ownership of common areas.
Conforming Mortgage - A mortgage that can be purchased by Fannie Mae and Freddie Mac.
Construction Mortgage - A loan secured by real estate which is for the purpose of funding the construction of improvements or building(s) upon the property.
Construction-to-Permanent Mortgage - A loan secured by real estate, which is for the purpose of replacing a construction, mortgage soon after the improvements are completed.
Contract Sale or Deed - Contract between purchaser and a seller of property to convey title after certain conditions have been met.
Contract - A legally enforceable agreement between two parties.
Conventional Mortgage - A mortgage not guaranteed by VA or insured by FHA, FMHA or State Bond Agencies.
Convertible Mortgage -Allows you to convert your adjustable rate mortgage to a fixed rate mortgage for a flat fee during a specific time frame.
Cooperative - Multiple ownership of stock in a corporation that owns the structure. Each owner has occupancy right to use the unit they purchase.
Cost Approach - Used by an appraiser to estimate replacement cost of improvements less depreciation on the property.
Covenant - A legal agreement or restriction on the use of the land. This is often used with homeowners associations to enforce restrictions on changing the outside structure appearance or maintenance responsibilities.
Credit Report - A report run by an independent credit agency which verifies certain information concerning an applicant's credit history.
-D-
Debt-To-Income Ratio - This is a key ratio used to determine the amount of money an individual can borrow. It is the monthly debt (payment obligation) divided by your gross monthly income. This gives a percentage that is compared to the guidelines provided by the investor for approval on your loan.
Deed In Lieu - A deed given by a borrower to a lender to satisfy a debt and avoid foreclosure.
Deed of Trust - A legal document that enables the lender, or mortgagee, to hold legal claim or titles to a property while the note is outstanding. The Deed of Trust transfers title to a trustee designated by the lender.
Default - The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.
Delinquency - When a borrower is not making monthly payments on time. If several payments are missed, this can lead to foreclosure.
Department of Housing and Urban Development - A cabinet level Federal Agency which houses the Federal Housing Administration (FHA), Government National Mortgage Association (GNMA) and oversees the activities of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).
Department of Veterans Affairs (VA) - Cabinet level Federal Agency whose chief purpose is to aid military veterans through a variety of programs.
Deposit - A sum of money (earnest money) given by the borrower to secure or bind a sale of real estate.
Discount Point - A charge by a lender collected to buy down the interest rate.
Down Payment - Money given by the purchaser of a property to the seller to acquire the mortgage and hence the property. The difference between the sales price and the mortgage amount are the down payment.
Due on Sale Clause - This represents the restrictions of contract stated in the Mortgage. If you violate the restrictions the lender can call the note due and payable at any time. This clause restricts the borrower from letting another individual assume the loan.
-E-
Earnest Money - A sum of money (deposit) given by the borrower to secure or bind a sale of real estate.
Easement - The right of limited use of land held by another. Examples include utility lines, driveways.
ECOA - Equal Credit Opportunity Act (ECOA) is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt from public assistance programs.
Economic Life - The estimated period of time during which a property can be utilized by its owner to produce income.
Encroachment - A physical object that violates the land of another (i.e. a fence line).
Encumbrance - Something that affects the fee simple title policy like a mortgage or easement.
Endorsement - A signature on an instrument that would transfer and assign a title of a property. Or it could be an endorsement to a title policy - example: Environmental Lien.
Entitlement - Entitlement for a VA guaranteed home loan. Is also known as eligibility.
Equity - When you buy a property the difference between the appraised value and the amount you owe is considered your equity in the home. Your equity will continue to grow as you apply more payments against your loan and your property value increases by appreciation or as you make home improvements or additions.
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 - Money held by a third party on behalf of the first party to be utilized for requirements of a second party. A servicer is a third party, which holds an escrow on behalf of the borrower to pay taxes and insurance payments to the applicable entities when they become due.
Executed Sales Contract - A contract where the buyer and seller have completed all the terms.
-F-
Fair Market Value - The price a property is transferred for between buyer and seller, each having a reasonable knowledge of all facts.
Farmers Home Administration (FmHA) - Federal agency which guarantees mortgages in rural areas.
FDIC - Federal Deposit Insurance Corporation. Originally established by the Banking Act of 1933 to protect the deposits of all banks entitled to Federal Deposit Insurance.
Federal Home Loan Mortgage Corporation (Freddie Mac) - A quasi-governmental agency which is a publicly traded corporation. The purpose of the entity is to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages. Conventional mortgages purchased by Freddie Mac are called conforming mortgages.
Federal National Mortgage Association (Fannie Mae) - A quasi-governmental agency which is a publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. Conventional mortgages purchased by Fannie Mae are called conforming mortgages.
Federal Housing Administration (FHA) - Government agency located within the Department of Housing and Urban Development.
Fee Simple - Gives you total interest in real estate property. This also gives you the right to sale the property or give the property to a relative.
FHA Loan - A loan insured by the Federal Housing Administration and intended to finance moderately priced homes.
Finance Charge - This amount includes the interest and all charges the borrower will be expected to pay over the life of the loan.
Firm Commitment - Issued by HUD/FHA to insure a mortgage loan under specific terms, or from a lender to make a mortgage loan under specific terms.
First Mortgage - The primary or original loan secured upon real estate.
Fixed Rate Mortgage - A mortgage in which the interest rate (and usually the payment) does not change over the term of the mortgage.
Float - A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked-in.)
Floor - The lowest interest rate of an adjustable rate mortgage
Forbearance - Agreement between lender and borrower that legal action will not be taken against the borrower if the borrower agrees to make up the payments in arrears by a specific date.
Foreclosure - A legal procedure where if the loan is defaulted - it can be sold through legal procedures to pay off any debt owed to the lender.
Free and Clear - A property with no mortgage liability placed on it.
Full Disclosure - Anyone who sells a home must inform the buyer of all knowledge they have regarding the physical and economic life of the home - such as any leaks, or structure damage to the home.
Fully Amortized - A mortgage, which has a zero balance at the end of the mortgage term.
Fully Indexed Accrual Rate (FIAR) - The index plus the margin for an adjustable rate mortgage.
-G-
Gift Letter - A letter stating that money has been given to you to apply towards the purchase of your home. This money is usually from a relative or a friend and is stated in the letter that this money is not to be paid back.
GNMA - Government National Mortgage Association - This is a federal government corporation and a part of the Department of Housing and Urban Development.
GPM - Graduated Payment Mortgage - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of loan has negative amortization built into it.
Grantee -The person to whom the property is conveyed to.
Grantor -The person who is conveying the property.
Gross Monthly Income - A person's income before deduction for taxes, medical insurance, etc. After deductions, the income is referred to as take home pay or net income.
-H-
Home Equity Loan - This type of loan lets you borrow money against the difference between your first mortgage balance and the appraised value of your home. The loan will be placed of record as a lien against your property and must be paid in full when you sell the property.
Housing Ratio - This ratio is used to determine how much of your income will be used for your house payment, taxes & insurance by dividing your housing expense into your gross monthly income.
-I-
Indemnity - A legal exemption from liability for damages.
Index - An indicator, which is typically measured by an average of a variable over a certain period of time.
Insured Closing Letter - A letter issued from the Title Company that protects the lender if the title company fails to follow the specific closing instructions.
Interest Rate - This is the rate you pay on the money you borrow. It's generally expressed as an annual percentage.
Interest - The amount of money you pay to borrow money. The interest is based on the rate, the amount of money you borrow and for how long you borrow.
Interim Financing - The type of financing you need for a new construction loan. This allows you to pay the builder the up front cost to get your home built. After completion of the home you can obtain permanent financing.
Interest Rate Cap - A limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage.
Investor - Any person or business that invest money in mortgages.
-J-
Joint Tenants - Co-owners of a property, each having equal interest and rights to the property.
Judgment Lien - A lien placed on a property by a court ruling due to a past debt not paid. This lien must be satisfied before you can refinance your property or when you sell the property.
Jumbo Mortgage - A mortgage loan that exceeds the maximum allowable purchase limits of Fannie Mae and Freddie Mac.
-K-
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-L-
Lien - A claim to a piece of property that a creditor would place as security for a debt.
Life Cap - The amount the interest rate is allowed to increase during the term of the mortgage.
Line of Credit - A financial institution will extend a line of credit for a certain time and amount through an agreement with the borrower.
Liquidity - Assets that can be readily converted to cash, such as stocks.
Loan Guaranty Certificate - The document from VA that states what portion of the loan is guaranteed.
Loan-To-Value (LTV) - The percentage of the loan amount you borrower based off of the sales price or appraised value of the property.
Lock-In - The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document, which specifies the terms of the lock- in, is called a rate commitment or lock-in agreement.
-M-
Margin - The amount added to the index on an adjustable rate mortgage to determine the interest rate at each adjustment.
Market Approach to Value - The actual price paid for similar market transactions used by the appraiser.
Market Value - The highest price a buyer would pay or the lowest price a seller would accept.
Mechanic's Liens - This is a law created for vendors that allows them to place a lien on equipment or buildings to secure payment for work completed or materials used.
Metes and Bounds - A parcel of land by which the boundaries are defined by directions and distances.
Mortgage - A loan secured against real estate as opposed to personal property. States, which are not Trust States, utilize a mortgage as the legal instrument to secure the lien against the real estate, which means that the owner holds title rather than a trustee.
Mortgage Broker - A company or individual for a fee, takes the application from the borrower and will either process the loan or refer the loan to a lender to process, close, fund and service the loan.
Mortgagee - The lender of money which is secured by real estate
Mortgagor - The borrower of money which is secured by real estate.
Mortgage Insurance - Money paid to insure the mortgage when the down payment is less than 20 percent, protecting the lender against default. Insurance can be issued by private sources (private mortgage insurance) or the Federal Housing Administration.
-N-
Negative Amortization - The principal balance of your loan increases rather than decreases. This happens when the money you pay on the loan doesn't cover the cost of the interest due on the loan.
Net Worth - The total of all your assets, cash, stocks, bonds, home furnishings, transportation vehicles less the total amount of liabilities (debt) that you owe.
Notary Public - A person who is authorized to witness and certify document signatures.
Note - A legal instrument, which specifies the terms of any debt. When someone borrows money secured against real estate, a note will be signed.
-O-
Office of Thrift supervision (OTS) - A division within the Treasury Department. They are responsible for the examination of state and federal charted regulations.
Origination Fee - The origination fee is charged by the lender, and is typically 1% of the loan amount you borrow. This fee is used to cover expenses during the process of the loan.
-P-
Per-Diem Interest - Interest charged from the day of closing to the first day of your new monthly mortgage payment.
PITI - The total mortgage payment comprised of (P) principal and (I) interest, as well as (T) real estate taxes and (I) insurance (if the latter two are applicable).
Plat - A map that shows a piece of land subdivided into lots.
POC - A charge which is paid outside of closing. This would include closing costs such as the appraisal and credit report, which an applicant pays up-front to the lender.
Point - A charge by a lender. One point is equal to 1% of the mortgage amount.
Power of Attorney - This is a legal document that allows one person to act on behalf of another person.
Pre-Approval - This allows you the ability to get approved for a specific loan amount prior to finding the home you want to purchase. This can give you a great advantage with a homeowner or realtor if someone else is interested in the same home at the same time. Also, if your thinking about refinancing and wanting to payoff creditors or take cash out but not sure you would qualify - you can apply for a pre-approval and save on the cost of getting an appraisal on your home until you know if you qualify.
Prepaids - Closing costs that are actually paid at closing for charges, which will occur in the future. One example would be prepaid interest, which is for interest, which will accrue after the closing date until the starting date of the note.
Private Mortgage Insurance (PMI) - On a conventional loan PMI is required if you borrow over 80.01% of your appraised value. This protects the lender against financial loss if the loan is defaulted.
Processing - The procedure in which a loan application is handled, which includes documentation, underwriting, and closing.
Purchase Agreement - A written contract between buyer and seller on a piece of property that details the terms and the price of the sale.
-Q-
Qualification - The process which determines whether an applicant can be approved for a mortgage loan. Real Estate Settlement Procedures Act (RESPA) Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services, and standardizes the closing with a required form and format (HUD-1).
Quit Claim Deed - A deed that releases all interest you may have in the property with no warranty.
-R-
Refinance Mortgage - Money borrowed by the present owner of real estate to replace an existing loan secured by the same real estate or to place a mortgage on free and clear property.
Recording Fees - The fee collected from the borrower to record the mortgage document and make part of a public record.
Residential Real Estate - Housing built and owned for the purpose of a person(s) making the property his/her home or a property to be rented to tenants. For purposes of classification, residential real estate contains one to four units.
-S-
Second Mortgage - A loan which is secured by real estate, which is already secured, by another loan referred to as the first mortgage.
Settlement Agent - A person or entity which coordinates or conducts a loan closing or settlement.
Survey - The measurement of the boundaries of a parcel of land, including any improvements, easements or encroachments within the boundaries of the property.
-T-
Tax Lien - A claim against property for past due property taxes owed.
Term - The period or life over which a mortgage exists.
Title - Ownership record of the property. A settlement agent will conduct a title search to make sure the seller has clear title to the property before conducting settlement. If there is not clear title, it is said that the title has defects. Title Insurance is typically required to cover the lender against such defects.
Title Insurance - The policy covers the homeowner and lender against any errors in title search.
Truth-In-Lending - The TIL is required by law to be disclosed on a mortgage loan. The document includes the Annual Percentage Rate (APR) and other costs.
-U-
Uniform Residential Loan Application Form - A form accepted by all major mortgage sources for application of residential mortgage loans. It may also be referred too as Form 1003.
Uniform Residential Appraisal Report - The appraisal form that is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages.
Uniform Settlement Statement (HUD-1) - Settlement summary form required by RESPA to be used by closing agents.
Underwriting - The process by which lenders analyze risk..
-V-
VA Loan - In order to qualify for a VA loan you had to serve or currently be active in the military.
Verification of Deposit - Form, which verifies an applicant's liquid assets, held with a particular financial institution.
Verification of Employment - Form which verifies an applicant's job history, including employment date, salary, year-to-date income, income for the past year, and probability of continued employment. This form is sent directly from the lender to the applicant's employer.
Verification of Mortgage - Form which verifies an applicant's mortgage history with a financial institution, including the date of the mortgage, present balance, present payment, and history of late payments. The Verification of Loan and Verification of Rental History would garner similar information for personal loans and the applicant's landlord (if renting).
-W-
Waiver - To waive your respective rights.
-X-
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-Y-
Yield - The ratio of investment income to the total investment amount over a given period of time.
-Z-
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A B C D
E F G H
I J K L
M N O P
Q R S T
U V W X
Y Z Abstract - The abstract provides the written history of the ownership for that particular piece of land or parcel. The title binder is information gathered from the abstract.
Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate changes at certain intervals during the term of the loan.
Adjustment Period - The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A six-month ARM would have an adjustment every six months.
Amortization Schedule - A table that shows the principal changes of a mortgage balance on a monthly or annual basis.
Annual Percentage Rate (APR) - Calculation which standardizes rates, point, and other costs of a mortgage loan. This figure is disclosed as part of the truth-in-lending statement, which is required by the Federal Truth-In-Lending Act. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal - An estimate of value -- in this case for real property. For residential properties the appraiser would utilize the Uniform Residential Appraisal Report or URAR.
Assignment of Mortgage - A document used to transfer ownership of a mortgage from one party to another.
Assumption of a Mortgage - The document that changes the liability of the payment from the buyer to the seller. The seller can still be held liable for payments if the buyer defaults, unless the buyer is qualified for the loan and seller is removed from the title. The Assumption Agreement is the written agreement that is filed to perform the transaction. The Assumption Fee is the lender charged fee to process the transaction.
Attorney in Fact - This document allows one person to execute a legal document on behalf of another person. This document is often used when one person is court declared incompetent to make sound legal decisions on his/her own behalf.
-B-
Balloons - A loan with fixed rate payments for the first five to seven years of the loan then a lump sum payment is due on the balance of the loan at a specified date. The mortgage does not fully amortize over the term of the mortgage.
Bankruptcy - When an individual or business is unable to pay back creditors. The individual or business files bankruptcy with the courts, surrenders all assets to the court and is no longer obligated to repay any unsecured debts.
Beneficiary - The person who is named to receive benefits from, a retirement fund, life insurance policy or will.
Bi-weekly Mortgage - A mortgage with payments due every two weeks totaling 26 payments a year.
Binder - A title binder is a written commitment from the title insurance company to insure title to the property subject to conditions listed.
Building Restriction Line - The distance from the road within which no building may take place.
Buydown - A fee paid to lower the interest rate on a mortgage, the buyer, seller, or any other interested party may pay it. A permanent buydown would lower the rate for the entire term of the mortgage. A temporary buydown would lower the rate for a certain portion of the mortgage term, usually the first few years.
-C-
Capital Gains - The asset you gain when a property is sold for more than you owe on the loan.
Caps (Interest) - Consumer safeguards on the interest rate of an adjustable rate mortgage that limit the interest that can be charged per year and the life of the loan.
Caps (Payment) - Consumer safeguards the limit on how much the monthly mortgage payment of an adjustable rate mortgage may change.
Cash Flow - The income received on an income-producing property. The cash flow should be enough to cover all expenses insured from the property.
Certificate of Eligibility - A document given by the Veterans Administration to the veteran to verify his/her eligibility for a VA mortgage. Certificates of Eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).
Certificate of Title - A written confirmation by a title company or attorney that the property on title is legally vested to the present owner.
Certificate of Veteran Status - A document form completed by the Department of Veteran affairs to establish a veteran's eligibility for a FHA Vet Mortgage.
Chain of Title - The order of documents in which the title has been transferred from the original owner to the present owner.
Chapter 13 - A repayment plan on debt owed to creditors. A payment plan is setup for 3-5 years by the court to make partial payments to the creditors.
Chapter 7 - A form of bankruptcy that allows a trustee the power to distribute debtor's assets to creditors.
Class Action - A claim brought up on behalf of a group of people.
Clear Title - Title that is free of liens or defects.
Closed-End Mortgage - A mortgage where the debt cannot be increased.
Closing Costs - Fees and costs that both buyer and seller must pay at closing. They generally include origination fee, discount fee, appraisal fee, credit report, title search, recording fees and other costs described in the HUD I at settlement.
Collateral - A property pledged to secure a debt.
Commitment - A written agreement between lender and a borrower to loan money, at a future date, subject to specific conditions. A loan commitment would be an agreement to lend and represent another term for loan approval.
Combined Loan -To-Value - The principal balance of all mortgages on the property (including second and third mortgages) divided by the value of the property.
Comparables - Properties used to compare similar characteristics to determine value on a specific property.
Condominium - A type of property ownership in a multi-unit structure that combine joint ownership of common areas.
Conforming Mortgage - A mortgage that can be purchased by Fannie Mae and Freddie Mac.
Construction Mortgage - A loan secured by real estate which is for the purpose of funding the construction of improvements or building(s) upon the property.
Construction-to-Permanent Mortgage - A loan secured by real estate, which is for the purpose of replacing a construction, mortgage soon after the improvements are completed.
Contract Sale or Deed - Contract between purchaser and a seller of property to convey title after certain conditions have been met.
Contract - A legally enforceable agreement between two parties.
Conventional Mortgage - A mortgage not guaranteed by VA or insured by FHA, FMHA or State Bond Agencies.
Convertible Mortgage -Allows you to convert your adjustable rate mortgage to a fixed rate mortgage for a flat fee during a specific time frame.
Cooperative - Multiple ownership of stock in a corporation that owns the structure. Each owner has occupancy right to use the unit they purchase.
Cost Approach - Used by an appraiser to estimate replacement cost of improvements less depreciation on the property.
Covenant - A legal agreement or restriction on the use of the land. This is often used with homeowners associations to enforce restrictions on changing the outside structure appearance or maintenance responsibilities.
Credit Report - A report run by an independent credit agency which verifies certain information concerning an applicant's credit history.
-D-
Debt-To-Income Ratio - This is a key ratio used to determine the amount of money an individual can borrow. It is the monthly debt (payment obligation) divided by your gross monthly income. This gives a percentage that is compared to the guidelines provided by the investor for approval on your loan.
Deed In Lieu - A deed given by a borrower to a lender to satisfy a debt and avoid foreclosure.
Deed of Trust - A legal document that enables the lender, or mortgagee, to hold legal claim or titles to a property while the note is outstanding. The Deed of Trust transfers title to a trustee designated by the lender.
Default - The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.
Delinquency - When a borrower is not making monthly payments on time. If several payments are missed, this can lead to foreclosure.
Department of Housing and Urban Development - A cabinet level Federal Agency which houses the Federal Housing Administration (FHA), Government National Mortgage Association (GNMA) and oversees the activities of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).
Department of Veterans Affairs (VA) - Cabinet level Federal Agency whose chief purpose is to aid military veterans through a variety of programs.
Deposit - A sum of money (earnest money) given by the borrower to secure or bind a sale of real estate.
Discount Point - A charge by a lender collected to buy down the interest rate.
Down Payment - Money given by the purchaser of a property to the seller to acquire the mortgage and hence the property. The difference between the sales price and the mortgage amount are the down payment.
Due on Sale Clause - This represents the restrictions of contract stated in the Mortgage. If you violate the restrictions the lender can call the note due and payable at any time. This clause restricts the borrower from letting another individual assume the loan.
-E-
Earnest Money - A sum of money (deposit) given by the borrower to secure or bind a sale of real estate.
Easement - The right of limited use of land held by another. Examples include utility lines, driveways.
ECOA - Equal Credit Opportunity Act (ECOA) is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt from public assistance programs.
Economic Life - The estimated period of time during which a property can be utilized by its owner to produce income.
Encroachment - A physical object that violates the land of another (i.e. a fence line).
Encumbrance - Something that affects the fee simple title policy like a mortgage or easement.
Endorsement - A signature on an instrument that would transfer and assign a title of a property. Or it could be an endorsement to a title policy - example: Environmental Lien.
Entitlement - Entitlement for a VA guaranteed home loan. Is also known as eligibility.
Equity - When you buy a property the difference between the appraised value and the amount you owe is considered your equity in the home. Your equity will continue to grow as you apply more payments against your loan and your property value increases by appreciation or as you make home improvements or additions.
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 - Money held by a third party on behalf of the first party to be utilized for requirements of a second party. A servicer is a third party, which holds an escrow on behalf of the borrower to pay taxes and insurance payments to the applicable entities when they become due.
Executed Sales Contract - A contract where the buyer and seller have completed all the terms.
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Fair Market Value - The price a property is transferred for between buyer and seller, each having a reasonable knowledge of all facts.
Farmers Home Administration (FmHA) - Federal agency which guarantees mortgages in rural areas.
FDIC - Federal Deposit Insurance Corporation. Originally established by the Banking Act of 1933 to protect the deposits of all banks entitled to Federal Deposit Insurance.
Federal Home Loan Mortgage Corporation (Freddie Mac) - A quasi-governmental agency which is a publicly traded corporation. The purpose of the entity is to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages. Conventional mortgages purchased by Freddie Mac are called conforming mortgages.
Federal National Mortgage Association (Fannie Mae) - A quasi-governmental agency which is a publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. Conventional mortgages purchased by Fannie Mae are called conforming mortgages.
Federal Housing Administration (FHA) - Government agency located within the Department of Housing and Urban Development.
Fee Simple - Gives you total interest in real estate property. This also gives you the right to sale the property or give the property to a relative.
FHA Loan - A loan insured by the Federal Housing Administration and intended to finance moderately priced homes.
Finance Charge - This amount includes the interest and all charges the borrower will be expected to pay over the life of the loan.
Firm Commitment - Issued by HUD/FHA to insure a mortgage loan under specific terms, or from a lender to make a mortgage loan under specific terms.
First Mortgage - The primary or original loan secured upon real estate.
Fixed Rate Mortgage - A mortgage in which the interest rate (and usually the payment) does not change over the term of the mortgage.
Float - A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked-in.)
Floor - The lowest interest rate of an adjustable rate mortgage
Forbearance - Agreement between lender and borrower that legal action will not be taken against the borrower if the borrower agrees to make up the payments in arrears by a specific date.
Foreclosure - A legal procedure where if the loan is defaulted - it can be sold through legal procedures to pay off any debt owed to the lender.
Free and Clear - A property with no mortgage liability placed on it.
Full Disclosure - Anyone who sells a home must inform the buyer of all knowledge they have regarding the physical and economic life of the home - such as any leaks, or structure damage to the home.
Fully Amortized - A mortgage, which has a zero balance at the end of the mortgage term.
Fully Indexed Accrual Rate (FIAR) - The index plus the margin for an adjustable rate mortgage.
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Gift Letter - A letter stating that money has been given to you to apply towards the purchase of your home. This money is usually from a relative or a friend and is stated in the letter that this money is not to be paid back.
GNMA - Government National Mortgage Association - This is a federal government corporation and a part of the Department of Housing and Urban Development.
GPM - Graduated Payment Mortgage - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of loan has negative amortization built into it.
Grantee -The person to whom the property is conveyed to.
Grantor -The person who is conveying the property.
Gross Monthly Income - A person's income before deduction for taxes, medical insurance, etc. After deductions, the income is referred to as take home pay or net income.
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Home Equity Loan - This type of loan lets you borrow money against the difference between your first mortgage balance and the appraised value of your home. The loan will be placed of record as a lien against your property and must be paid in full when you sell the property.
Housing Ratio - This ratio is used to determine how much of your income will be used for your house payment, taxes & insurance by dividing your housing expense into your gross monthly income.
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Indemnity - A legal exemption from liability for damages.
Index - An indicator, which is typically measured by an average of a variable over a certain period of time.
Insured Closing Letter - A letter issued from the Title Company that protects the lender if the title company fails to follow the specific closing instructions.
Interest Rate - This is the rate you pay on the money you borrow. It's generally expressed as an annual percentage.
Interest - The amount of money you pay to borrow money. The interest is based on the rate, the amount of money you borrow and for how long you borrow.
Interim Financing - The type of financing you need for a new construction loan. This allows you to pay the builder the up front cost to get your home built. After completion of the home you can obtain permanent financing.
Interest Rate Cap - A limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage.
Investor - Any person or business that invest money in mortgages.
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Joint Tenants - Co-owners of a property, each having equal interest and rights to the property.
Judgment Lien - A lien placed on a property by a court ruling due to a past debt not paid. This lien must be satisfied before you can refinance your property or when you sell the property.
Jumbo Mortgage - A mortgage loan that exceeds the maximum allowable purchase limits of Fannie Mae and Freddie Mac.
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Lien - A claim to a piece of property that a creditor would place as security for a debt.
Life Cap - The amount the interest rate is allowed to increase during the term of the mortgage.
Line of Credit - A financial institution will extend a line of credit for a certain time and amount through an agreement with the borrower.
Liquidity - Assets that can be readily converted to cash, such as stocks.
Loan Guaranty Certificate - The document from VA that states what portion of the loan is guaranteed.
Loan-To-Value (LTV) - The percentage of the loan amount you borrower based off of the sales price or appraised value of the property.
Lock-In - The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document, which specifies the terms of the lock- in, is called a rate commitment or lock-in agreement.
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Margin - The amount added to the index on an adjustable rate mortgage to determine the interest rate at each adjustment.
Market Approach to Value - The actual price paid for similar market transactions used by the appraiser.
Market Value - The highest price a buyer would pay or the lowest price a seller would accept.
Mechanic's Liens - This is a law created for vendors that allows them to place a lien on equipment or buildings to secure payment for work completed or materials used.
Metes and Bounds - A parcel of land by which the boundaries are defined by directions and distances.
Mortgage - A loan secured against real estate as opposed to personal property. States, which are not Trust States, utilize a mortgage as the legal instrument to secure the lien against the real estate, which means that the owner holds title rather than a trustee.
Mortgage Broker - A company or individual for a fee, takes the application from the borrower and will either process the loan or refer the loan to a lender to process, close, fund and service the loan.
Mortgagee - The lender of money which is secured by real estate
Mortgagor - The borrower of money which is secured by real estate.
Mortgage Insurance - Money paid to insure the mortgage when the down payment is less than 20 percent, protecting the lender against default. Insurance can be issued by private sources (private mortgage insurance) or the Federal Housing Administration.
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Negative Amortization - The principal balance of your loan increases rather than decreases. This happens when the money you pay on the loan doesn't cover the cost of the interest due on the loan.
Net Worth - The total of all your assets, cash, stocks, bonds, home furnishings, transportation vehicles less the total amount of liabilities (debt) that you owe.
Notary Public - A person who is authorized to witness and certify document signatures.
Note - A legal instrument, which specifies the terms of any debt. When someone borrows money secured against real estate, a note will be signed.
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Office of Thrift supervision (OTS) - A division within the Treasury Department. They are responsible for the examination of state and federal charted regulations.
Origination Fee - The origination fee is charged by the lender, and is typically 1% of the loan amount you borrow. This fee is used to cover expenses during the process of the loan.
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Per-Diem Interest - Interest charged from the day of closing to the first day of your new monthly mortgage payment.
PITI - The total mortgage payment comprised of (P) principal and (I) interest, as well as (T) real estate taxes and (I) insurance (if the latter two are applicable).
Plat - A map that shows a piece of land subdivided into lots.
POC - A charge which is paid outside of closing. This would include closing costs such as the appraisal and credit report, which an applicant pays up-front to the lender.
Point - A charge by a lender. One point is equal to 1% of the mortgage amount.
Power of Attorney - This is a legal document that allows one person to act on behalf of another person.
Pre-Approval - This allows you the ability to get approved for a specific loan amount prior to finding the home you want to purchase. This can give you a great advantage with a homeowner or realtor if someone else is interested in the same home at the same time. Also, if your thinking about refinancing and wanting to payoff creditors or take cash out but not sure you would qualify - you can apply for a pre-approval and save on the cost of getting an appraisal on your home until you know if you qualify.
Prepaids - Closing costs that are actually paid at closing for charges, which will occur in the future. One example would be prepaid interest, which is for interest, which will accrue after the closing date until the starting date of the note.
Private Mortgage Insurance (PMI) - On a conventional loan PMI is required if you borrow over 80.01% of your appraised value. This protects the lender against financial loss if the loan is defaulted.
Processing - The procedure in which a loan application is handled, which includes documentation, underwriting, and closing.
Purchase Agreement - A written contract between buyer and seller on a piece of property that details the terms and the price of the sale.
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Qualification - The process which determines whether an applicant can be approved for a mortgage loan. Real Estate Settlement Procedures Act (RESPA) Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services, and standardizes the closing with a required form and format (HUD-1).
Quit Claim Deed - A deed that releases all interest you may have in the property with no warranty.
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Refinance Mortgage - Money borrowed by the present owner of real estate to replace an existing loan secured by the same real estate or to place a mortgage on free and clear property.
Recording Fees - The fee collected from the borrower to record the mortgage document and make part of a public record.
Residential Real Estate - Housing built and owned for the purpose of a person(s) making the property his/her home or a property to be rented to tenants. For purposes of classification, residential real estate contains one to four units.
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Second Mortgage - A loan which is secured by real estate, which is already secured, by another loan referred to as the first mortgage.
Settlement Agent - A person or entity which coordinates or conducts a loan closing or settlement.
Survey - The measurement of the boundaries of a parcel of land, including any improvements, easements or encroachments within the boundaries of the property.
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Tax Lien - A claim against property for past due property taxes owed.
Term - The period or life over which a mortgage exists.
Title - Ownership record of the property. A settlement agent will conduct a title search to make sure the seller has clear title to the property before conducting settlement. If there is not clear title, it is said that the title has defects. Title Insurance is typically required to cover the lender against such defects.
Title Insurance - The policy covers the homeowner and lender against any errors in title search.
Truth-In-Lending - The TIL is required by law to be disclosed on a mortgage loan. The document includes the Annual Percentage Rate (APR) and other costs.
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Uniform Residential Loan Application Form - A form accepted by all major mortgage sources for application of residential mortgage loans. It may also be referred too as Form 1003.
Uniform Residential Appraisal Report - The appraisal form that is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages.
Uniform Settlement Statement (HUD-1) - Settlement summary form required by RESPA to be used by closing agents.
Underwriting - The process by which lenders analyze risk..
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VA Loan - In order to qualify for a VA loan you had to serve or currently be active in the military.
Verification of Deposit - Form, which verifies an applicant's liquid assets, held with a particular financial institution.
Verification of Employment - Form which verifies an applicant's job history, including employment date, salary, year-to-date income, income for the past year, and probability of continued employment. This form is sent directly from the lender to the applicant's employer.
Verification of Mortgage - Form which verifies an applicant's mortgage history with a financial institution, including the date of the mortgage, present balance, present payment, and history of late payments. The Verification of Loan and Verification of Rental History would garner similar information for personal loans and the applicant's landlord (if renting).
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Waiver - To waive your respective rights.
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Yield - The ratio of investment income to the total investment amount over a given period of time.
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