adjustable-rate mortgage (ARM)
(Return
to Top)
A mortgage that
changes interest rate periodically based upon
the changes
in a specified index.
adjustment
date (Return
to Top)
The date on which
the interest rate changes for an adjustable-rate
mortgage (ARM).
adjustment
period (Return
to Top)
The period that
elapses between the adjustment dates for an
adjustable-rate mortgage (ARM).
amortization (Return
to Top)
The repayment of a
mortgage loan by installments with regular
payments to cover the principal and
interest.
amortization
term (Return
to Top)
The amount of time
required to amortize the mortgage loan. The
amortization term is expressed as a number of
months. For example, for a 30-year fixed-rate
mortgage, the amortization term is 360
months.
annual percentage rate
(APR) (Return
to Top)
The cost of a
mortgage stated as a yearly rate; includes such
items as interest, mortgage insurance, and loan
origination fee (points).
application (Return
to Top)
A form, commonly
referred to as a 1003 form, used to apply for a
mortgage and to provide information regarding a
prospective mortgagor and the proposed
security.
appraisal (Return
to Top)
A written analysis
of the estimated value of a property prepared by
a qualified appraiser.
appraiser
(Return
to Top)
A person qualified
by education, training, and experience to
estimate the value of real property and personal
property.
appreciation (Return
to Top)
An increase in the
value of a property due to changes in market
conditions or other causes. The opposite of
depreciation.
asset (Return
to Top)
Anything of
monetary value that is owned by a person. Assets
include real property, personal property, and
enforceable claims against others (including
bank accounts, stocks, mutual funds, and so
on).
assignment (Return
to Top)
The transfer of a
mortgage from one person to another.
assumable
mortgage (Return
to Top)
A mortgage that can
be taken over ("assumed") by the buyer when a
home is sold.
assumption (Return
to Top)
The transfer of the
seller's existing mortgage to the buyer.
assumption
clause (Return
to Top)
A provision in an
assumable mortgage that allows a buyer to assume
responsibility for the mortgage from the seller.
The loan does not need to be paid in full by the
original borrower upon sale or transfer of the
property.
assumption
fee (Return
to Top)
The fee paid to a
lender (usually by the purchaser of real
property) resulting from the assumption of an
existing mortgage.
balance sheet
(Return
to Top)
A financial
statement that shows assets, liabilities, and
net worth as of a specific date.
balloon
mortgage (Return
to Top)
A mortgage that has
level monthly payments that will amortize it
over a stated term but that provides for a lump
sum payment to be due at the end of an earlier
specified term.
balloon
payment (Return
to Top)
The final lump sum
payment that is made at the maturity date of a
balloon mortgage.
bankrupt (Return
to Top)
A person, firm, or
corporation that, through a court proceeding, is
relieved from the payment of all debts after the
surrender of all assets to a court-appointed
trustee.
bankruptcy (Return
to Top)
A proceeding in a
federal court in which a debtor who owes more
than his or her assets can relieve the debts by
transferring his or her assets to a trustee.
before-tax
income (Return
to Top)
Income before taxes
are deducted.
beneficiary (Return
to Top)
The person
designated to receive the income from a trust,
estate, or a deed of trust.
binder (Return
to Top)
A preliminary
agreement, secured by the payment of an earnest
money deposit, under which a buyer offers to
purchase real estate.
biweekly payment
mortgage (Return
to Top)
A mortgage that
requires payments to reduce the debt every two
weeks (instead of the standard monthly payment
schedule). The 26 (or possibly 27) biweekly
payments are each equal to one-half of the
monthly payment that would be required if the
loan were a standard 30-year fixed-rate
mortgage, and they are usually drafted from the
borrower's bank account. The result for the
borrower is a substantial savings in
interest.
blanket
mortgage (Return
to Top)
The mortgage that
is secured by a cooperative project, as opposed
to the share loans on individual units within
the project.
bond (Return
to Top)
An interest-bearing
certificate of debt with a maturity date. An
obligation of a government or business
corporation. A real estate bond is a written
obligation usually secured by a mortgage or a
deed of trust.
breach (Return
to Top)
A violation of any
legal obligation.
bridge
loan (Return
to Top)
A form of second
trust that is collateralized by the borrower's
present home (which is usually for sale) in a
manner that allows the proceeds to be used for
closing on a new house before the present home
is sold. Also known as "swing loan."
broker (Return
to Top)
A person who, for a
commission or a fee, brings parties together and
assists in negotiating contracts between
them.
buydown
mortgage (Return
to Top)
A temporary buydown
is a mortgage on which an initial lump sum
payment is made by any party to reduce a
borrower's monthly payments during the first few
years of a mortgage. A permanent buydown reduces
the interest rate over the entire life of a
mortgage.
call option
(Return
to Top)
A provision in the
mortgage that gives the mortgagee the right to
call the mortgage due and payable at the end of
a specified period for whatever reason.
cap (Return
to Top)
A provision of an
adjustable-rate mortgage (ARM) that limits how
much the interest rate or mortgage payments may
increase or decrease.
capital
improvement (Return
to Top)
Any structure or
component erected as a permanent improvement to
real property that adds to its value and useful
life.
cash-out
refinance (Return
to Top)
A refinance
transaction in which the amount of money
received from the new loan exceeds the total of
the money needed to repay the existing first
mortgage, closing costs, points, and the amount
required to satisfy any outstanding subordinate
mortgage liens. In other words, a refinance
transaction in which the borrower receives
additional cash that can be used for any
purpose.
Certificate of
Eligibility (Return
to Top)
A document issued
by the federal government certifying a veteran's
eligibility for a Department of Veterans Affairs
(VA) mortgage.
Certificate of Reasonable Value
(CRV) (Return
to Top)
A document issued
by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount
for a VA mortgage.
certificate of
title (Return
to Top)
A statement
provided by an abstract company, title company,
or attorney stating that the title to real
estate is legally held by the current owner.
chain of
title (Return
to Top)
The history of all
of the documents that transfer title to a parcel
of real property, starting with the earliest
existing document and ending with the most
recent.
change
frequency (Return
to Top)
The frequency (in
months) of payment and/or interest rate changes
in an adjustable-rate mortgage (ARM).
clear
title (Return
to Top)
A title that is
free of liens or legal questions as to ownership
of the property.
closing (Return
to Top)
A meeting at which
a sale of a property is finalized by the buyer
signing the mortgage documents and paying
closing costs. Also called "settlement."
closing cost item
(Return
to Top)
A fee or amount
that a home buyer must pay at closing for a
single service, tax, or product. Closing costs
are made up of individual closing cost items
such as origination fees and attorney's fees.
Many closing cost items are included as numbered
items on the HUD-1 statement.
closing
costs (Return
to Top)
Expenses (over and
above the price of the property) incurred by
buyers and sellers in transferring ownership of
a property. Closing costs normally include an
origination fee, an attorney's fee, taxes, an
amount placed in escrow, and charges for
obtaining title insurance and a survey. Closing
costs percentage will vary according to the area
of the country.
closing
statement (Return
to Top)
Also referred to as
the HUD1. The final statement of costs incurred
to close on a loan or to purchase a home.
cloud on
title (Return
to Top)
Any conditions
revealed by a title search that adversely affect
the title to real estate. Usually clouds on
title cannot be removed except by a quitclaim
deed, release, or court action.
collateral (Return
to Top)
An asset (such as a
car or a home) that guarantees the repayment of
a loan. The borrower risks losing the asset if
the loan is not repaid according to the terms of
the loan contract.
collection (Return
to Top)
The efforts used to
bring a delinquent mortgage current and to file
the necessary notices to proceed with
foreclosure when necessary.
co-maker (Return
to Top)
A person who signs
a promissory note along with the borrower. A
co-maker's signature guarantees that the loan
will be repaid, because the borrower and the
co-maker are equally responsible for the
repayment. See endorser.
commission (Return
to Top)
The fee charged by
a broker or agent for negotiating a real estate
or loan transaction. A commission is generally a
percentage of the price of the property or
loan.
commitment
letter (Return
to Top)
A formal offer by a
lender stating the terms under which it agrees
to lend money to a home buyer. Also known as a
"loan commitment."
common
areas (Return
to Top)
Those portions of a
building, land, and amenities owned (or managed)
by a planned unit development (PUD) or
condominium project's homeowners' association
(or a cooperative project's cooperative
corporation) that are used by all of the unit
owners, who share in the common expenses of
their operation and maintenance. Common areas
include swimming pools, tennis courts, and other
recreational facilities, as well as common
corridors of buildings, parking areas, means of
ingress and egress, etc.
Community Home Improvement Mortgage
Loan (Return
to Top)
An alternative
financing option that allows low- and
moderate-income home buyers to obtain 95 percent
financing for the purchase and improvement of a
home in need of modest repairs. The repair work
can account for as much as 30 percent of the
appraised value.
community property
(Return
to Top)
In some western and
southwestern states, a form of ownership under
which property acquired during a marriage is
presumed to be owned jointly unless acquired as
separate property of either spouse.
comparables (Return
to Top)
An abbreviation for
"comparable properties"; used for comparative
purposes in the appraisal process. Comparables
are properties like the property under
consideration; they have reasonably the same
size, location , and amenities and have recently
been sold. Comparables help the appraiser
determine the approximate fair market value of
the subject property.
condominium (Return
to Top)
A real estate
project in which each unit owner has title to a
unit in a building, an undivided interest in the
common areas of the project, and sometimes the
exclusive use of certain limited common
areas.
condominium
conversion (Return
to Top)
Changing the
ownership of an existing building (usually a
rental project) to the condominium form of
ownership.
construction
loan (Return
to Top)
A short-term,
interim loan for financing the cost of
construction. The lender makes payments to the
builder at periodic intervals as the work
progresses.
consumer reporting agency (or
bureau) (Return
to Top)
An organization
that prepares reports that are used by lenders
to determine a potential borrower's credit
history. The agency obtains data for these
reports from a credit repository as well as from
other sources.
contingency (Return
to Top)
A condition that
must be met before a contract is legally
binding. For example, home purchasers often
include a contingency that specifies that the
contract is not binding until the purchaser
obtains a satisfactory home inspection report
from a qualified home inspector.
contract (Return
to Top)
An oral or written
agreement to do or not to do a certain
thing.
conventional
mortgage (Return
to Top)
A mortgage that is
not insured or guaranteed by the federal
government.
convertibility
clause (Return
to Top)
A provision in some
adjustable-rate mortgages (ARMs) that allows the
borrower to change the ARM to a fixed-rate
mortgage at specified timeframes after loan
origination.
convertible
ARM (Return
to Top)
An adjustable-rate
mortgage (ARM) that can be converted to a
fixed-rate mortgage under specified
conditions.
cooperative
(co-op) (Return
to Top)
A type of multiple
ownership in which the residents of a multiunit
housing complex own shares in the cooperative
corporation that owns the property, giving each
resident the right to occupy a specific
apartment or unit.
corporate
relocation (Return
to Top)
Arrangements under
which an employer moves an employee to another
area as part of the employer's normal course of
business or under which it transfers a
substantial part or all of its operations and
employees to another area because it is
relocating its headquarters or expanding its
office capacity.
cost of funds index
(COFI) (Return
to Top)
An index that is
used to determine interest rate changes for
certain adjustable-rate mortgage (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 (Return
to Top)
A clause in a
mortgage that obligates or restricts the
borrower and that, if violated, can result in
foreclosure.
credit (Return
to Top)
An agreement in
which a borrower receives something of value in
exchange for a promise to repay the lender at a
later date.
credit history
(Return
to Top)
A record of an
individual's open and fully repaid debts. A
credit history helps a lender to determine
whether a potential borrower has a history of
repaying debts in a timely manner.
credit
report (Return
to Top)
A report of an
individual's credit history prepared by a credit
bureau and used by a lender in determining a
loan applicant's creditworthiness. See merged
credit report.
credit
repository (Return
to Top)
An organization
that gathers, records, updates, and stores
financial and public records information about
the payment records of individuals who are being
considered for credit.
debt
(Return
to Top)
An amount owed to
another.
deed (Return
to Top)
The legal document
conveying title to a property.
deed-in-lieu (Return
to Top)
A deed given by a
mortgagor to the mortgagee to satisfy a debt and
avoid foreclosure.
deed of
trust (Return
to Top)
The document used
in some states instead of a mortgage; title is
conveyed to a trustee.
default (Return
to Top)
Failure to make
mortgage payments on a timely basis or to comply
with other requirements of a mortgage.
delinquency (Return
to Top)
Failure to make
mortgage payments when mortgage payments are
due.
deposit (Return
to Top)
A sum of money
given to bind the sale of real estate, or a sum
of money given to ensure payment or an advance
of funds in the processing of a loan.
depreciation (Return
to Top)
A decline in the
value of property; the opposite of
appreciation.
down
payment (Return
to Top)
The part of the
purchase price of a property that the buyer pays
in cash and does not finance with a
mortgage.
due-on-sale provision
(Return
to Top)
A provision in a
mortgage that allows the lender to demand
repayment in full if the borrower sells the
property that serves as security for the
mortgage.
earnest money deposit
(Return
to Top)
A deposit made by
the potential home buyer to show that he or she
is serious about buying the house.
easement (Return
to Top)
A right of way
giving persons other than the owner access to or
over a property.
effective
age (Return
to Top)
An appraiser's
estimate of the physical condition of a
building. The actual age of a building may be
shorter or longer than its effective age.
effective gross
income (Return
to Top)
Normal annual
income including overtime that is regular or
guaranteed. The income may be from more than one
source. Salary is generally the principal
source, but other income may qualify if it is
significant and stable.
encumbrance (Return
to Top)
Anything that
affects or limits the fee simple title to a
property, such as mortgages, leases, easements,
or restrictions.
endorser (Return
to Top)
A person who signs
ownership interest over to another party.
Contrast with co-maker.
Equal Credit Opportunity Act
(ECOA) (Return
to Top)
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 of income
from public assistance programs.
equity (Return
to Top)
A homeowner's
financial interest in a property. Equity is the
difference between the fair market value of the
property and the amount still owed on its
mortgage.
escrow (Return
to Top)
An item of value,
money, or documents deposited with a third party
to be delivered upon the fulfillment of a
condition. For example, the deposit by a
borrower with the lender of funds to pay taxes
and insurance premiums when they become due, or
the deposit of funds or documents with an
attorney or escrow agent to be disbursed upon
the closing of a sale of real estate.
escrow
account (Return
to Top)
The account in
which a mortgage servicer holds the borrower's
escrow payments prior to paying property
expenses.
escrow
analysis (Return
to Top)
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
(Return
to Top)
Funds collected by
the servicer and set aside in an escrow account
to pay the borrower's property taxes, mortgage
insurance, and hazard insurance.
escrow
disbursements (Return
to Top)
The use of escrow
funds to pay real estate taxes, hazard
insurance, mortgage insurance, and other
property expenses as they become due.
escrow
payment (Return
to Top)
The portion of a
mortgagor's monthly payment that is held by the
servicer to pay for taxes, hazard insurance,
mortgage insurance, lease payments, and other
items as they become due. Known as "impounds" or
"reserves" in some states.
estate (Return
to Top)
The ownership
interest of an individual in real property. The
sum total of all the real property and personal
property owned by an individual at time of
death.
eviction (Return
to Top)
The lawful
expulsion of an occupant from real property.
examination of
title (Return
to Top)
The report on the
title of a property from the public records or
an abstract of the title.
Fair Credit Reporting Act
(Return
to Top)
A consumer
protection law that regulates the disclosure of
consumer credit reports by consumer/credit
reporting agencies and establishes procedures
for correcting mistakes on one's credit
record.
fair market
value (Return
to Top)
The highest price
that a buyer, willing but not compelled to buy,
would pay, and the lowest a seller, willing but
not compelled to sell, would accept.
Fannie
Mae (Return
to Top)
A congressionally
chartered, shareholder-owned company that is the
nation's largest supplier of home mortgage
funds.
Fannie Mae's Community Home Buyer's
Program (Return
to Top)
An income-based
community lending model, under which mortgage
insurers and Fannie Mae offer flexible
underwriting guidelines to increase a low- or
moderate-income family's buying power and to
decrease the total amount of cash needed to
purchase a home. Borrowers who participate in
this model are required to attend pre-purchase
home-buyer education sessions.
Federal Housing Administration
(FHA) (Return
to Top)
An agency of the
U.S. Department of Housing and Urban Development
(HUD). Its main activity is the insuring of
residential mortgage loans made by private
lenders. The FHA sets standards for construction
and underwriting but does not lend money or plan
or construct housing.
fee
simple (Return
to Top)
The greatest
possible interest a person can have in real
estate.
FHA
mortgage (Return
to Top)
A mortgage that is
insured by the Federal Housing Administration
(FHA). Also known as a government mortgage.
finder's
fee (Return
to Top)
A fee or commission
paid to a mortgage broker for finding a mortgage
loan for a prospective borrower.
first
mortgage (Return
to Top)
A mortgage that is
the primary lien against a property.
fixed-rate mortgage
(FRM) (Return
to Top)
A mortgage in which
the interest rate does not change during the
entire term of the loan.
flood
insurance (Return
to Top)
Insurance that
compensates for physical property damage
resulting from flooding. It is required for
properties located in federally designated flood
areas.
foreclosure
(Return
to Top)
The legal process
by which a borrower in default under a mortgage
is deprived of his or her interest in the
mortgaged property. This usually involves a
forced sale of the property at public auction
with the proceeds of the sale being applied to
the mrotgage debt.
fully amortized ARM
(Return
to Top)
An adjustable-rate
mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at
the interest accrual rate, over the amortization
term.
good faith estimate
An estimate of charges which a
borrower is likely to incur in connection with a
settlement.
hazard insurance
(Return
to Top)
Insurance protecting against loss
to real estate caused by fire, some natural
causes, vandalism, etc., depending upon the
terms of the policy.
housing
ratio (Return
to Top)
The ratio of the
monthly housing payment in total (PITI -
Principal, Interest, Taxes, and Insurance)
divided by the gross monthly income. This ratio
is sometimes referred to as the top ratio or
front end ratio.
HUD (Return
to Top)
The U.S. Department
of Housing and Urban Development.
index
(Return
to Top)
A published
interest rate to which the interest rate on an
Adjustable Rate Mortgage (ARM) is tied. Some
commonly used indeces include the 1 Year
Treasury Bill, 6 Month LIBOR, and the 11th
District Cost of Funds (COFI).
lien
(Return
to Top)
An encumbrance
against property for money due, either voluntary
or involuntary.
lifetime
cap (Return
to Top)
A provision of an
ARM that limits the highest rate that can occur
over the life of the loan.
loan to value ratio
(LTV) (Return
to Top)
The ratio of the
amount of your loan to the appraised value of
the home. The LTV will affect programs available
to the borrower and generally, the lower the LTV
the more favorable the terms of the programs
offered by lenders.
lock-in (Return
to Top)
A written agreement
guaranteeing the home buyer a specified interest
rate provided the loan is closed within a set
period of time. The lock-in also usually
specifies the number of points to be paid at
closing.
margin
(Return
to Top)
The number of
percentage points a lender adds to the index
value to calculate the ARM interest rate at each
adjustment period. A representative margin would
be 2.75%.
mortgage (Return
to Top)
A legal document
that pledges a property to the lender as
security for payment of a debt
mortgage disability
insurance (Return
to Top)
A disability
insurance policy which will pay the monthly
mortgage payment in the event of a covered
disability of an insured borrower for a
specified period of time.
mortgage insurance
(MI) (Return
to Top)
Insurance written
by an independent mortgage insurance company
protecting the mortgage lender against loss
incurred by a mortgage default. Usually required
for loans with an LTV of 80.01% or higher.
mortgagee (Return
to Top)
The person or
company who receives the mortgage as a pledge
for repayment of the loan. The mortgage
lender.
mortgagor (Return
to Top)
The mortgage
borrower who gives the mortgage as a pledge to
repay.
non-conforming loan
(Return
to Top)
Also called a jumbo
loan. Conventional home mortgages not eligible
for sale and delivery to either Fannie Mae
(FNMA) or Freddie Mac (FHLMC) because of various
reasons, including loan amount, loan
characteristics or underwriting guidelines.
Non-conforming loans usually incur a rate and
origination fee premium.The current
non-conforming loan limit is ,601 and above.
note (Return
to Top)
A written agreement
containing a promise of the signer to pay to a
named person, or order, or bearer, a definite
sum of money at a specified date or on
demand.
origination
fee (Return
to Top)
A fee imposed by a
lender to cover certain processing expenses in
connection with making a real estate loan.
Usually a percentage of the amount loaned, such
as one percent.
owner financing
(Return
to Top)
A property purchase
transaction in which the property seller
provides all or part of the financing.
Planned Unit Developments
(PUD) (Return
to Top)
A subdivision of
five or more individually owned lots with one or
more other parcels owned in common or with
reciprocal rights in one or more other
parcels.
PITI (Return
to Top)
Principal,
interest, taxes and insurance--the components of
a monthly mortgage payment.
points (Return
to Top)
Charges levied by
the mortgage lender and usually payable at
closing. One point represents 1% of the face
value of the mortgage loan.
prepaids (Return
to Top)
Those expenses of
property which are paid in advance of their due
date and will usually be prorated upon sale,
such as taxes, insurance, rent, etc.
prepayment
penalty (Return
to Top)
A charge imposed by
a mortgage lender on a borrower who wants to pay
off part or all of a mortgage loan in advance of
schedule.
principal (Return
to Top)
Amount of debt, not
including interest. The face value of a note or
mortgage.
private mortgage insurance
(PMI)
Insurance provided by
nongovernment insurers that protects lenders
against loss if a borrower defaults. Fannie Mae
generally requires private mortgage insurance
for loans with loan-to-value (LTV) percentages
greater than 80%.
qualifying
ratios (Return
to Top)
The ratio of your
fixed monthly expenses to your gross monthly
income, used to determine how much you can
afford to borrow. The fixed monthly expenses
would include PITI along with other obligations
such as student loans, car loans, or credit card
payments.
rate
cap (Return
to Top)
A limit on how much
the interest rate can change, either at each
adjustment period or over the life of the
loan.
rate lock-in
(Return
to Top)
A written agreement
in which the lender guarantees the borrower a
specified interest rate, provided the loan
closes within a set period of time.
rebate (Return
to Top)
Compensation
received from a wholesale lender which can be
used to cover closing costs or as a refund to
the borrower. Loans with rebates often carry
higher interest rates than loans with "points"
(see above).
refinancing (Return
to Top)
The process of
paying off one loan with the proceeds from a new
loan using the same property as security.
residential mortgage credit
report (RMCR)
(Return
to Top)
A report requested
by your lender that utilizes information from at
least two of the three national credit bureaus
and information provided on your loan
application.
seller carry back
(Return
to Top)
An agreement in
which the owner of a property provides
financing, often in combination with an assumed
mortgage.
survey (Return
to Top)
A print showing the
measurements of the boundaries of a parcel of
land, together with the location of all
improvements on the land and sometimes its area
and topography.
tenants-in-common
(Return
to Top)
An undivided
interest in property taken by two or more
persons. The interest need not be equal. Upon
death of one or more persons, there is no right
of survivorship.
title (Return
to Top)
The evidence one
has of right to possession of land.
title
insurance (Return
to Top)
Insurance against
loss resulting from defects of title to a
specifically described parcel of real
property.
title
search (Return
to Top)
An investigation
into the history of ownership of a property to
check for liens, unpaid claims, restrictions or
problems, to prove that the seller can transfer
free and clear ownership.
total debt
ratio (Return
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Monthly debt and
housing payments divided by gross monthly
income. Also known as Obligations-to-Income
Ratio or Back-End Ratio.
Truth-in-Lending
Act
(Return
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A federal law
requiring a disclosure of credit terms using a
standard format. This is intended to facilitate
comparisons between the lending terms of
different financial institutions.
Veterans Administration
(VA) (Return
to Top)
A government agency
guaranteeing mortgage loans with no down payment
to qualified veterans. | 
