Glossary

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Abstract of Title
A written summary of the public records relating to the title of a particular piece of land. If there are any title defects they must be cleared before a buyer can purchase clear, marketable and insurable title.

Abstraction
Method for computing depreciation by comparing the replacement cost of improvements to the sales price less the land value.

Acceleration Clause
A common provision of a mortgage or note providing the holder with the right to demand that the entire outstanding balance is immediately due and the note payable in the event of default.

Accrued Interest
Interest earned but not yet paid.

Acquisition
A process by which a mortgage company purchases a loan/servicing rights to a loan from the original servicer.

Added Assessment Tax
One-time property assessment (multiple installments) due to the local taxing authority as a result of reevaluation of the property value.

Adjustable Rate Mortgage (ARM)
A loan with an interest rate that is adjusted periodically based on changes in a pre-selected index. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. These mortgage loans must specify how their interest rate changes, usually in terms of a relation to a national index such as (but not always) Treasury Bill rates. If interest rates rise, your monthly payments will rise. An interest rate cap limits the amount by which the interest rate can change; look for this feature when you consider an ARM loan.

Adjustment
The change made to an interest rate in an adjustable rate mortgage.

Adjustment Interval
On an ARM loan, the time between changes in the interest rate or monthly payment.

Adjustment Period
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, usually one, three or five years.

Agreement of Sale
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Alimony
A court-ordered allowance for support to an ex-spouse.

Alternative Documentation
A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application. An example would be a borrower's monthly bank statement instead of a verification of deposit.

Amortization
Repayment of a loan with periodic payments of both principal and interest calculated to pay off the loan at the end of a fixed period of time.

Amortization Schedule
A table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.

Annual Disclosure Statement
An annual letter mailed on FHA (Federal Housing Administration) loans to remind the mortgagors of their right to pay off the loan prior to maturity.

Annual Percentage Rate (APR)
The cost of a loan expressed as a yearly rate on the balance of the loan. APR includes a combination of interest rate, points and other fees paid to acquire the mortgage.

Anticipated Purchase Price
The amount of money a buyer estimates will be required to purchase a property.

Application
A printed form used by a mortgage lender that details a potential borrower's income, debt and other obligations which the lender will use to determine the borrower's creditworthiness. Sometimes called the 1003 form.

Application Fee
A fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report and a lock-in fee or other closing costs incurred during the process, or the fee may be in addition to these charges.

Appraisal
A report made by a qualified person setting forth an opinion or estimate of a property's value. The term also refers to the process by which this estimate is obtained.

Appraisal Fee
A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.

Appraisal Report
A report made by a qualified person setting forth an opinion or estimate of a property's value. The term also refers to the process by which this estimate is obtained.

Appraised Value
An opinion of the current market value of a property.

Appreciation
An increase in the value of a home or other property.

APR
See Annual Percentage Rate.

ARM
See Adjustable Rate Mortgage.

Assessed Valuation
The value that a taxing authority places on real or personal property for the purpose of taxation.

Assessment
A charge against a property for purpose of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.

Asset
Anything of monetary value that is owned by a person. Assets include real property, stocks, bonds, mutual funds and cars.

Assignment
The transfer of ownership, rights or interests in property, such as in a mortgage, lease or deed of trust. Transfer is made from the assignor to the assignee.

Assumable
The feature of a loan that allows it to be transferred to the new purchaser of a home. Assumable mortgages can help attract buyers to a home since the assumption of a loan can reduce the fees necessary for the buyer to obtain financing.

Assumption
A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.

Auto Loan
A loan taken to finance a motor vehicle.

Auto Payment
Money paid each month to pay down an auto loan or lease.

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Balloon Mortgage
Balloon mortgage loans are short-term fixed-rate loans with fixed monthly payments for a set number of years followed by one large final payment ("the balloon") for all of the remainder of the principal. Typically, the balloon payment may be due at the end of 5, 7, or 10 years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.

Bankruptcy
A proceeding in court where a person can be relieved of payment of debts. Bankruptcies remain on a credit record for up to 10 years and can severely limit a person's ability to borrow.

Bank Statement
A monthly accounting of funds and activity in a banking account.

Bearer
The legal owner of a piece of property.

Bequest
A gift of personal property by will.

Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

Blanket Mortgage
A mortgage that covers more than one property owned by the same borrower.

Bona Fide
In good faith.

Borrower (Mortgagor)
An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.

Broker
Any person who acts as a go-between. A real estate broker is licensed to handle property transactions. A mortgage broker matches borrowers to lenders for a fee, but does not lend money directly.

Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be set by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buy-down
Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.

Buyer's Market
Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.

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Call Option
A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

Cap
A limit on the amount that the interest rate or monthly payment can increase in an adjustable rate mortgage.

Caps (Interest)
Consumer safeguards, which limit the amount that the interest rate on an adjustable rate mortgage may change per year and/or over the life of the loan.

Caps (Payment)
Consumer safeguards, which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, these consumer safeguards may cause negative amortization.

Cash-out Refinance
The refinancing of a mortgage in which the money received from the new loan is greater than the amount due on the old loan. The borrower can use the extra funds in any manner.

Cashier's Check (or Bank Check)
A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's.

Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

Ceiling
The maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Deposit
A document that shows that the bearer has a specified amount of money on deposit with a bank, stock-brokerage firm or other financial institution.

Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans that verifies a veteran's eligibility for a VA guaranteed loan. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).

Certificate of Title
A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property that he is offering for sale. A certificate of title offers no protection against any hidden defects in the title that an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence.

Certificate of Veteran Status
FHA form filled out by the VA to establish a borrower's eligibility for an FHA Vet loan. Obtainable through local VA office by submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of veteran status).

Chain of Title
The official record that details the ownership history of a piece of property.

Child Support
Money paid to support the raising of a child, usually by a parent who is not living within the child's household.

Closing
The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement.

Closing Costs
Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey, and pre-paid items such as tax and insurance escrow payments.

Closing Date
An agreed-upon date when the buyer, seller and related parties meet to sign and record documents in the transfer or refinancing of property (close the loan).

Closing Statement
A financial disclosure giving an account of all funds received and paid at closing, including escrow deposits for taxes, hazard insurance and mortgage insurance. Most conventionally financed loans use a uniform settlement statement called the HUD-1.

Cloud (On Title)
An outstanding claim which negatively affects the marketability of title.

Co-Borrower
Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.

COFI
See Cost of Funds Index.

Collateral
Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Commission
Money paid to a real estate agent or broker for negotiating a real estate or loan transaction.

Commitment
A lender's offer to grant a mortgage loan that outlines the terms, the amount of the loan, the interest rate and other conditions. It can also serve as a communication of the lender's decision on the borrower's application.

Commitment Fee (Loan)
Any fee paid by a potential borrower to a lender for the lender's promise to lend money at a specified rate and within a given time period.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Condemnation
A determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium
Individual units in a building or development in which owners hold title to the interior space, while common areas such as parking lots and community rooms are owned by all residents.

Conforming Loan
Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). These agencies generally purchase first mortgages up to loan amounts mandated by Congressional directive.

Construction Loan
A short-term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses.

Contingency
A condition that must be satisfied before a contract is legally binding.

Contract of Sale
See Agreement of Sale.

Contract
An agreement between two or more parties that creates or modifies an existing relationship.

Contractor
Generally a person who contracts to erect buildings. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building and others.

Conventional Mortgage
A mortgage not obtained under a government-insured program (such as FHA or VA).

Conversion or Convertibility Clause
A provision in some adjustable rate mortgages that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.

Convertible ARM
A mortgage which starts as an adjustable rate loan, but allows the borrower to convert the loan to a fixed-rate mortgage during a specified period of time.

Conveyance
The document used to effect a transfer, such as a deed or mortgage.

Cooperative Housing (Co-op)
An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation that entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cosigner
Another person who signs your loan along with you, and assumes equal responsibility for it.

Cost of Funds Index (COFI)
An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

Covenant
A legal assurance or promise stated in a deed or other document, or implied by the law.

Credit
The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.

Credit Bureau
A company that gathers information on consumers to create an individual financial profile. There are three major credit bureaus: Trans Union Corp., Equifax and Experian (formerly TRW).

Credit Card
Any card used from time to time to borrow money or buy goods or services on credit.

Credit Card Statement
Document detailing recent credit card purchases, account balance and payments.

Credit History
The record of how you've borrowed and repaid debts (See Credit Report).

Credit Pre-Approval
A process in which an individual can apply for credit pre-approval before he/she actually finds a home and enters into a sales agreement.

Credit Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net income (FHA/VA loans) or gross monthly income (Conventional loans).

Credit Report
A report that shows a loan applicant's history of payments made on previous debts. Several companies issue credit reports, but the three largest are Trans Union Corp., Equifax and Experian (formerly TRW).

Credit Report Fee
Fee paid by the applicant to cover costs of verifying a loan applicant's credit.

Credit-Related Insurance
Health, life or accident insurance designed to pay the outstanding balance of debt.

Credit Scoring System
A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.

Creditor
A person or business from whom you borrow or to whom you owe money.

Creditworthiness
Past and future ability to repay debts.

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Deed of Trust
A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on a loan. A Deed of Trust is used in many states in place of a mortgage.

Default
Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Deferred Interest
See Negative Amortization.

Delinquency
Failure to make payments as agreed in the loan agreement.

DeMinimus PUD
A Planned Unit Development (PUD) in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units. Also see PUD.

Department of Veterans Affairs (VA)
An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Deposit
A sum of money given to bind a sale of real estate. Also known as earnest money.

Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Diploma
A certificate issued by a high school, college, etc. indicating graduation or the conferring of a degree. In certain instances a diploma may be required when applying for a mortgage.

Disability Funds
Income derived from outside sources (work, government, insurance) directly related to an individual's disability.

Disclosures
Information that must be given to consumers about their financial dealings.

Discount Points (or Points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. one point on a $100,000 mortgage would cost $1,000). Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

Discounted Loan
When the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.

Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Down Payment
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/Clause
Standard language in a mortgage which states that the loan must be paid when a house is sold.

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Earnest Money
Deposit made by a buyer of a property to the seller in evidence of good faith when the purchase agreement is signed.

Easement
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

ECOA
See Equal Credit Opportunity Act.

Effective Rate
The effective rate is a consumer-oriented rate that takes into account the projected amount of time you estimate you will actually have the loan, as well as the specific costs, fees, and potential rate changes associated with it. The fees and costs are distributed over the time you plan to be in the house, illustrating the "effective interest rate" on the loan taking fees into account. The effective rate is not the APR. It is similar in that it factors in interest, mortgage insurance, and other fees (including points); however, the APR assumes that you keep your loan for the entire loan term, while the effective rate takes into account how long you plan to be in your house.

Elderly Applicant
As defined in the Equal Credit Opportunity Act, a person 62 or older.

Electronic Fund Transfer (EFT) Systems
A variety of systems and technologies for transferring funds electronically rather than by check.

Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

Equity
The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.

Escrow
Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

Escrow Account
An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account.

Escrow Agent
A person with fiduciary responsibility to the buyer and seller, or the borrower and lender, to ensure that the terms of the purchase/sale or loan are carried out.

Escrow Fees
Monthly payments, paid to an escrow account, that cover fees such as homeowner's insurance and property taxes.

Escrow Statement
The statement sent to the borrower showing the Escrow Account activity.

Estimated Value
The approximate value of a property.

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Fair Credit Reporting Act (FCRA)
A federal law that requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information. This law also requires consumer reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.

Fair Housing Act
The Fair Housing Act prohibits discrimination in the sale, rental, financing, or advertising of dwellings; in the provision of brokerage services; or in the availability of residential real estate-related transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin.

Fannie Mae
See Federal National Mortgage Association.

Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

FDIC
See Federal Deposit Insurance Corporation.

Federal Deposit Insurance Corporation (FDIC)
Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.

Federal Home Loan Mortgage Corporation - FHLMC
Also called Freddie Mac. A quasi-governmental agency that purchases conventional mortgages in the secondary mortgage market from insured depository institutions and HUD-approved mortgage bankers. It sells participation sales certificates secured by pools of conventional mortgage loans, their principal, and interest guaranteed by the federal government through the FHLMC.

Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

Federal National Mortgage Association (FNMA)
Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and securitizes (insures) conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

Federal Tax
Income tax paid to the federal government.

Federal Tax Rate
The rate of income tax a person pays to the federal government.

Fee Simple
This type of ownership is the maximum interest a person can have in a piece of real estate. It entitles the owner to use the property in any manner they see fit, in accordance with state and local laws.

FHA
See Federal Housing Administration.

FHA Loans
Fixed- or adjustable-rate loans insured by the Federal Housing Administration. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans. With FHA insurance, eligible buyers can purchase a home with a down payment as little as 3% of the appraised value or the purchase price, whichever is lower. FHA borrowers typically are required to participate in a face-to-face meeting with their lender or a government approved mortgage counselor prior to closing on a new mortgage loan. The current FHA loan limits vary depending on home type and home location.

FHA Mortgage Insurance
Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA.

FHLMC
See Federal Home Loan Mortgage Corporation.

First Mortgage
The cost of consumer credit as a dollar amount, including any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as a condition of the extension of credit.

First Mortgage
A mortgage which is in first lien position, taking priority over all other liens except real estate taxes. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Fixed Rate Mortgage
A mortgage in which the interest rate and monthly payments of principal and interest remain the same for the life of the loan.

Floating Your Rate
A loan application that is processed at a market rate. This means the applicant decides against locking-in the interest rate at the time of application and instead elects to float with the market until a later date at which time he/she will request the lender to lock-in the interest rate.

Flood Insurance
Insurance that covers for physical damage to a property due to flood. Typically not covered under standard hazard insurance.

FNMA
See Federal National Mortgage Association.

Forbearance
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.

Foreclosure (or Repossession)
Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default.

401(k) Statement
Paperwork which details a person's 401(k) holdings.

Freddie Mac
See Federal Home Loan Mortgage Corporation.

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General Warranty Deed
A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Gift Letter
A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

Ginnie Mae
See Government National Mortgage Association.

Good Faith Estimate (GFE)
Written estimate of the settlement costs the borrower will likely have to pay at closing, required under the Real Estate Settlement Procedures Act (RESPA).

Government National Mortgage Association (GNMA)
Also known as Ginnie Mae. Provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grantee
That party in the deed who is the buyer or recipient.

Grantor
That party in the deed who is the seller or giver.

Gross Income
The total income of a household before taxes or expenses are subtracted.

Gross Monthly Income
The total amount the borrower earns per month, before any taxes or expenses are deducted.

Guarantee
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

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Hazard Insurance
This provision of homeowner's insurance covers damage by fire, wind or other disaster. It is required by all lenders before a loan is approved.

Home Equity Line of Credit
A form of open-end credit in which the home serves as collateral.

Homeowners' Association Dues
The fees imposed by a condominium or homeowners' association for maintenance of common areas.

Homeowner's Insurance
This insurance includes hazard coverage for any damages that may affect the value of a house, in addition to personal liability and theft coverage.

Homestead Exemption
In some states, a statutory exemption which prohibits the attachment or sale of owner-occupied properties to pay the claims of creditors. Also known as a Homestead Estate.

Housing and Urban Development
See HUD.

Housing Expense Ratio
The percentage of gross monthly income devoted to housing costs.

HUD (U.S. Department of Housing and Urban Development)
A federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.

HUD-1 Uniform Settlement Statement
A standard form which itemizes the closing costs associated with purchasing a home or refinancing a loan.

HUD Settlement Cost Guide (HUD guide)
HUD - published booklet that provides an overview of the lending process, and that is given to consumers after completing loan application.

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Impound Account (Impound)
See Escrow Account.

Index
A published rate used by lenders that serves as the basis for determining interest rate changes on ARM loans.

Initial Index Value
The beginning value of a published index, such as the prime rate, LIBOR, T-Bill rate, or the 11th District COFI. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On adjustable rate mortgages, a predetermined margin is added to the index to compute the interest rate adjustment.

Initial Rate
The rate charged during the first interval of an adjustable rate mortgage (ARM) loan.

Insured Loans
A loan insured by HUD-FHA or a private mortgage insurance company.

Interest
Any compensation directly or indirectly imposed by the lender for the extension of credit.

Interest Rate
The annual rate of interest on the loan, expressed as a percentage.

Interest Rate Cap
Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan.

Investment Income
Income generated from stocks, bonds, retirement plans or other investments.

Investment Property
Real estate owned with the intent of renting it out to generate income and not intended for owner occupancy.

Investor
Money source for a lender.

IRA Statement
Statement detailing activity for an Individual Retirement Account which can be used as verification of assets in an IRA. IRAs are tax-deferred savings accounts that allow people to accrue retirement funds.

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Joint Account
A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

Joint Liability
Liability shared among two or more people, each of whom is liable for the full debt.

Joint Tenancy
A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

Judgement
Final determination by a court of the rights and claims of the parties to an action.

Jumbo Mortgage/Loan
Loans that exceed limits set by Fannie Mae and Freddie Mac. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Junior Mortgage
A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first

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Keogh Statement
The statement from your Keogh Retirement Account, which can be used as verification of assets in a Keogh Retirement Account.

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Late Charge
An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.

Late Payment
A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

Legal Separation Documents
Document stating the specific terms of your separation from your spouse.

Lender
An institution (mortgage company) making a loan.

Lender's Fee
Money charged by a lender to cover loan-processing costs. Also called origination fee.

Lender's Title Insurance
A policy issued to lenders to protect against any losses because of a dispute over the ownership of a piece of property.

Lessee
A person who signs a lease to get temporary use of property.

Lessor
A company that provides temporary use of property usually in return for periodic payment.

Letter of Direction
Consent for a mortgagor with a property in trust to obtain a Second Mortgage, payoff the First Mortgage, remove the property from trust or change the trust bank.

Liability on an Account
Legal responsibility to repay debt.

LIBOR (London Interbank Offered Rate)
The interest rate charged among banks in a foreign market for short-term loans to one another. A common index for ARM loans.

Lien
A legal claim or attachment against property as security for payment of an obligation.

Life Insurance
Insurance that guarantees a specific sum of money to a designated beneficiary upon the death of the insured.

Lifetime Cap
Limits the amount that a loan rate can change during the mortgage term. For example, if the rate on an adjustable rate mortgage begins at 5% and has a life cap of 6 percentage points, the rate cannot go over 11%.

Loan
A sum of money lent at interest.

Loan Adjustment
The periodic interest rate adjustment to an adjustable rate mortgage.

Loan Amount
The total amount of money borrowed.

Loan Application
An initial statement of personal and financial information required to apply for a loan.

Loan Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges.

Loan Costs
Costs associated with the application, processing and approval of a loan. Often called Loan Fees.

Loan Origination Fee
Fee charged by a lender to cover administrative costs of processing a loan.

Loan Pay-off
A total balance, or the amount of a full payment on existing loan.

Loan-to-Value Ratio (LTV)
The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property.

Lock-in (Locking Your Rate)
A procedure where a lender agrees to lock-in a specific interest rate (initial interest rate in the case of an adjustable rate mortgage) on a mortgage loan request for a specified period of time

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Maintenance Costs
Various costs associated with the upkeep of a property. These costs could include everything from painting the house to putting in a new driveway.

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value
The most probable price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).

Marketable Title
A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Maturity
The termination or due date on which final payment on a loan must be paid in full.

Maximum Rate
The highest an interest rate will rise on an adjustable rate mortgage.

Maximum Rate Change
The highest an interest rate can rise, on an adjustable rate mortgage, from one adjustment period to the next.

MECA (Mortgage Extension and Consolidation Agreement)
A recorded document unique to New York properties which enables borrowers to refinance their existing loan and avoid paying a recording tax except on new money advanced.

Minimum Rate
The lowest an interest rate will go on an adjustable rate mortgage.

Monthly Debt
The amount of money a person owes each month.

Monthly Escrow Payment
The portion of the mortgage payment used to pay taxes and insurance premiums. May also be called impounds or reserves.

Monthly Expenses
The amount of money a person spends each month.

Monthly Income
The amount of money a person earns each month.

Monthly Interest
Consideration in the form of money paid for the use of money, calculated monthly.

Monthly Payment
Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.

Monthly Rent
The amount of money a person pays for the right to occupy another person's property.

Monthly Statement
The document sent to the borrower, which includes their account activity for the month.

Mortgage
See Deed of Trust.

Mortgage Banker
An individual or company that originates and/or services mortgage loans.

Mortgage Broker
An individual or company that arranges financing for borrowers, acting as an agent between the borrower and the actual lender.

Mortgage Insurance
Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's appraised value. (Note, however, that FHA and VA loans have different insurance guidelines.)

Mortgage Insurance Premium (MIP)
The consideration paid by a mortgagor (borrower) for mortgage insurance - either to the FHA or to a private mortgage insurer.

Mortgagee
A financial institution that lends money to the borrower.

Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgage Term
The overall repayment period of the mortgage.

Mortgagor
The person who borrows money to purchase a house.

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Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Net Effective Income
The borrower's gross income minus federal income tax.

Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.

Non-Conforming Loan
Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines.

Note
See Mortgage Note.

Notice of Default
Written notice to a borrower that a default has occurred and that legal action may be taken

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Occupancy
The use of a property as a full-time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).

Open-End Credit
A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.

Original Loan Amount
The total amount of money borrowed from a lender when a loan is originated.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

Other Expenses
Other expenses that make up monthly debt which could include credit card payments, loans, etc.

Outstanding Loan Amount
The balance of money on a loan that has not yet been paid off.

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Payoff Statement
A document providing the total amount due to satisfy a loan, (includes a breakdown of the total amount and wire/mail instructions).

Pay Stubs
The non-redeemable portion of a person's paycheck which indicates, among other things, gross income for a given pay period.

Percentage Point
One percent of the loan or a measure of the interest rate.

Per Diem Interest
Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.)

Pest Inspection Report
A common pest-control inspection is a termite inspection, which is required in some states.

PITI (Principal, Interest, Taxes and Insurance)
When a buyer applies for a loan, the lender will calculate the principal, interest, taxes and insurance. The figure is designed to represent the borrower's actual monthly mortgage-related expenses.

Plat
A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Points (or Discount Points)
Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Pre-approval
The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.

Preliminary Title Report
The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

Prepaid Expenses (Prepaids)
Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing.

Prepaid Interest
Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Prepayment
Full or partial repayment of the principal before the contractual due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in some but not all states.

Pre-qualification
The process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application.

Pre-tax Salary
Income before taxes are deducted.

Prevailing Interest Rate
The most widely used interest rate at a point in time.

Primary Residence
The home which the borrower lives in for the majority of the year.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance
Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.

Processing
The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

Property Appraisal
An opinion or estimate of the property's value made by an independent appraiser or by a member of the lender's staff.

Property Taxes
Property taxes are based on the market value of a property and vary from state to state.

PUD (Planned Unit Development)
A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners; the association of unit owners generally owns, pays fees, and maintains the common areas. Also see DeMinimus PUD.

Purchase Agreement
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Contract (Agreement/Offer)
An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.

Purchase Price
The amount of money a buyer and seller agree to on the sale of a home.

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Quitclaim Deed
A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

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Rate Lock Option
An agreement guaranteeing an individual a specified interest rate on a loan provided the loan is closed within a set period of time.

Real Assets
Real estate or real property owned by an individual of business.

Real Estate Broker
A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Real Estate Settlement Procedures Act (RESPA)
A federal statute and regulation promulgated by U.S. Department of Housing and Urban Development (HUD), governing real estate lending practices and disclosures. Its main features pertain to the provision of a good faith estimate of loan settlement costs.

Real Property
Land and any improvements permanently affixed to it, such as buildings.

Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract, under certain circumstances and terms, once it is signed if the transaction uses equity in the home as security.

Reconveyance
The transfer of property back to the owner when a mortgage loan is fully repaid.

Recorder's Office
The office where public records are recorded.

Recording
The act of entering documents concerning title to a property into the public records.

Recording Fee
Money paid to an agent for entering the sale of a property into the public records.

Refinancing
The process of paying off one loan with the proceeds from a new loan secured by the same property.

Rental Insurance
A policy that covers the replacement value of possessions.

Rental Property
Real estate that generates rental income.

REO (Real Estate Owned) Properties
Property a lender acquires as the result of a foreclosure.

RESPA
See Real Estate Settlement Procedures Act.

Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

Retirement Funds
Funds invested in a qualified retirement account, which includes 401(k), Keogh and other retirement accounts.

Reverse Mortgage
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

Right to Rescission
Under the provisions of the Truth-in-Lending Act, the borrower's right, on certain kinds of refinance loans, to cancel the loan within three days of signing a mortgage.

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Sales Agreement
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Sales Contract
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Satisfaction of Mortgage
The recordable instrument issued by the lender verifying full payment of a mortgage debt.

Savings
Money that a person accumulates and saves and is considered part of a person's assets.

Savings Interest
The amount of interest, expressed as a percentage, that can be earned on a person's savings. Also called Savings Interest Rate.

School Tax
Property assessment due to the local taxing authority for the school district.

Second Home (Vacation Home, Weekend Home)
A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

Second Mortgage
An additional mortgage placed on a property that has rights that are subordinate to the first mortgage.

Secondary Mortgage Market
A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Security
In lending, the collateral given, deposited, or pledged to secure the payment of a debt.

Security Interest
The creditor's right to take property or a portion of property offered as security.

Selling Costs
Costs associated with the sale of property.

Service Charge
A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

Service Release
A stipulation in the agreement for the sale of mortgages in which the seller is not responsible for loan administration. Also known as Servicing Released.

Servicing
A mortgage banking function following loan closing which includes the receipt of payments, customer service, escrow administration, investor accounting, collections, and foreclosures.

Settlement (or Closing)
The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Settlement Costs
Also known as closing costs, these costs are for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees.

Settlement Services
Services provided by the lender at the closing of a loan.

Settlement Statement (HUD-1)
Document outlining the financial transactions that occur at closing.

Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for which a lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Simple Interest
Interest paid or computed on original principal only of a loan.

Social Security Card
The actual card issued to a person, which has their social security number printed on it.

Social Security Funds
Government sponsored funding providing economic assistance to persons who are elderly, unemployed or disabled.

Sources of Income
Other monthly sources of income could include interest earned on savings accounts, income received from trust funds, investment income, income received from rental properties, etc.

Special Assessments
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.

Special Lien
A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. Also see lien.

Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

State Tax Rate
The tax rate in your state. Each state's rate is different.

Student Loans
Loans taken for the purpose of subsidizing education costs.

Supplemental Tax
One-time property assessment (multiple installments) due to the local taxing authority as a result of change of ownership/reassessment of the property.

Survey
A measurement of land, prepared by a licensed surveyor, showing a property's boundaries, elevations, improvements, and relationship to surrounding tracts.

Survey Fee
Cost related to the surveying of a property.

Sweat Equity
Value added to a property in the form of labor or services of the owner rather than cash.

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Tax
Money paid to the local, state and federal government.

Tax (Real Estate)
As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Tax Abatement
The exemption or reduction of local taxes on a project for a specific period of time.

Tax Deduction
A tax break given by the government. Mortgage interest, loan points and property taxes can be deducted.

Tax Impound
Money paid to and held by a lender for annual tax payments.

Tax Lien
Claim against a property for unpaid taxes.

Tax Returns
State and federal income tax filing records.

Tax Sale
Public sale of property by a government authority as a result of non-payment of taxes.

1098 Form (Annual Tax and Mortgage Interest Statement)
A document that provides the amount of mortgage interest, taxes and points and the amount of overpaid interest refund for a given year.

1099 Form
Tax form stating dividend, interest or miscellaneous income for a given tax year.

Tenants-in-common
A form of ownership in which two or more owners hold an undivided (not necessarily equal) interest in a property with no right of survivorship.

Term
The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

Termite Infestation Report
A report from a qualified termite inspector on the presence of termites in a home. Often required in the sale of a home.

Title
Document which gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.

Title Company
A company that insures title to property.

Title Insurance
A policy issued to lenders and buyers to protect any losses because of a dispute over the ownership of a piece of property. Also referred to as the Title Policy.

Title Search
An examination of public title records to determine that the seller is the legal owner and that there are no claims or liens against the property.

Transaction Costs
Costs incurred when a piece of property changes hands.

Transfer Tax
Tax paid to the city, county, state or other government entity upon sale of a property.

Trust
A fiduciary relationship whereby legal title to a property is transferred to a trustee with the intention that such property be administered by the trustee for the benefit of another, the beneficiary, who holds equitable title to such property.

Trustee
A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

Truth-in-Lending Act
Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right to rescission period.

Two-Step Mortgage
A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time.

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Underwriting
The analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, the borrower's ability to repay the loan and the application of criteria specified by an investor.

Usury
Interest charged in excess of the legal rate established by law.

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VA Loans
Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee, and lower closing costs than other financing options.

VA Mortgage Funding Fee
A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan.

Vacation Home
A property that cannot be qualified as an investment property as it is not rented and is used occasionally by the owners. Also referred to as a Second Home.

Variable Rate
Interest rate that changes periodically in relation to an index.

Variable Rate Mortgage
See Adjustable Rate Mortgage.

Verification of Deposit (VOD
Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history. Verification of Employment (VOE)
Document signed by the borrower's employer verifying the borrower's position and salary.

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Waiver
Voluntary relinquishment or surrender of some right or privilege.

Walk-through
A final inspection of a home to check for problems that may need to be corrected before closing.

Warranty Deed
Grantor guarantees that title transferred is good.

Wraparound
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

W-2 Forms
Tax form stating your wages and taxes for a given tax year.

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There are no terms for "X" at this time.

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There are no terms for "Y" at this time.

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Zero Point Option
An option which allows the borrower to pay a slightly higher interest rate in lieu of paying the loan origination points generally charged for that particular loan product.

Zoning Ordinances (or Zoning Regulations)
Local law establishing building codes and usage regulations for properties in a specified area.

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