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 Acceleration Clause A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if any monthly payments are missed. Acceptance An offer's consent to enter into a contract and be bound by the terms of the offer. Additional Principal Payment A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan. Adjustable Rate Mortgage (ARM) A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index. Adjustment Date The date on which the interest rate changes for an adjustable-rate mortgage (ARM). Adjustment Period The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM). Amortization The gradual repayment of a mortgage loan by installments. Amortization Schedule A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made. Amortize To repay a mortgage with regular payments that cover both principal and interest. Annual Percentage Rate (APR) The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fees (points). Application A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. Appraisal A written analysis of the estimated value of a property prepared by a qualified appraiser. Contrast with home inspection. Appraised Value An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Appraiser A person qualified by education, training, and experience to estimate the value of real property and personal property. Appreciation An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation. Assessed Value The valuation placed on property by a public tax assessor for purposes of taxation. Asset 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 The transfer of a mortgage from one person to another. Assumable Mortgage A mortgage that can be taken over ("assumed") by the buyer when the home is sold. Assumption Clause 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 The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage. Attorney-In-Fact Fee One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. Back to Top B Balance Sheet A financial statement that shows assets, liabilities, and net worth as of a specific date. Balloon Mortgage A mortgage that has level monthly payments that will amortize over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term. Bankruptcy A proceeding in the federal courts in which a debtor, who owes more that his or her assets can repay, can relieve those debts by transferring his or her assets to a trustee. Beneficiary The person designated to receive the income from a trust, estate, or a deed of trust. Binder A preliminary agreement secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate. Blanket Insurance Policy A single policy that covers more than one piece of property (or more than one person). BridgeLoan 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 A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. See mortgage broker. Buydown Account An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect. Buydown Mortgage 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. Back to Top C Call Option 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 A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap. Cash-Out-Refinance 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 mortgages, closing cost, 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 other purposes. Certificate of Deposit A document written by a bank or other financial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specified interest rate within a specified time period. Certificate of Deposit Index An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See adjustable-rate mortgage (ARM). Certificate of Eligibility A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage. Certificate of Reasonable Value A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage. Chain of Title 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 The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM). Clear Title A title that is free of liens or legal questions as to ownership of the property. Closing A meeting at which the sale of a property is finalized when the buyer signs the mortgage documents and pays the closing costs. Also called "settlement". Closing Cost Item A fee or amount that a homebuyer 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 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. The closing cost percentage will vary according to the area of the country; lenders or realtors often provide estimates of closing costs to prospective homebuyers. Closing Statement See HUD-1 statement. Cloud on Title Any conditions revealed by a title search that adversely affects the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action. Collateral 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 The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary. Co-Maker 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 The fee charged by a broker or agent for negotiating a real estate or loan transaction. The commission fee is generally a percentage of the price of the property or loan. Commitment Letter A formal offer by the lender stating the terms under which it agrees to lend money to the homebuyer. Also known as a "loan commitment". Common Area Assessments Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowner's association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project. Common Areas Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowner's 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. Common Law An unwritten body of law based on general custom in England and used to an extent in the United States. Community Property 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. Comparable 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, amenities, and have recently been sold. Comparables help the appraiser to determine the approximate fair market value of the subject property. Compound Interest Interest paid on the original principal balance and on the accrued and unpaid interest. Condemnation The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain. Condominium A real estate project in which each unit owner has title to a unit in a building, undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. Condominium Conversion Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership. Construction Loan 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) 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 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 An oral or written agreement to do or to not do a certain thing. Conventional Mortgage A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage. Convertibility Clause 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 An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions. Cooperative (Co-Op) 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. Cost Of Funds Index (COFI) 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. See adjustable-rate mortgage (ARM). Credit An agreement in which a borrower receives something of value in exchange or a promise to repay the lender at a later date. Credit History A record of an individual's open and fully repaid debts. A credit history helps the lender to determine whether a potential borrower has a history of repaying debts in a timely manner. Creditor A person to whom money is owed. Credit Report A report of an individual's credit history prepared by a credit bureau and used by a lender in determining the loan applicant's creditworthiness. See merged credit report. Credit Repository 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. Back to Top D Debt An amount owed to another. See installment loan and revolving liability. Deed The legal document conveying title to a property. Deed-In-Lieu A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance". Deed Of Trust The document used in some states instead of a mortgage; title is conveyed to a trustee. Default Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage. Delinquency Failure to make mortgage payments when mortgage payments are due. Deposit 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. See earnest money deposit. Depreciation A decline in the value of a property; the opposite of appreciation. Discount Points See point. 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 A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as a security for the mortgage. Due-On-Transfer Provision This terminology is usually used for second mortgages. See due-on-sale provision. Back to Top E Earnest Money Deposit A deposit made by the potential homebuyer to show that he or she is serious about buying the house. Easement A right of way giving persons other than the owner access to or through a property. Eminent Domain The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings. Encroachment An improvement that intrudes illegally onto another's property. Encumbrance Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions. Endorser A person who signs their ownership interest over to another party. Contrast with co-maker. Equal Credit Opportunity Act (ECOA) 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 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 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 The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses. Escrow Analysis The periodic examination of an escrow account to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due. Escrow Collections Funds collected by the servicer and set-aside in an escrow account to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due. Escrow Payment 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 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 The lawful expulsion of an occupant from real property. Examinaiton Of Title The report on the title of a property from the public records or an abstract of the title. Back to Top F   G Government Mortgage A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage. Grantee The person to whom an interest in real property is conveyed. Grantor The person conveying an interest in real property. Guaranteed Loan Also known as a government mortgage. Back to Top H Hazard Insurance Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. Home Equity Line Of Credit A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage. Home Inspection A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal. Homeowner's Association A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In the case of a condominium project, the homeowner's association has no ownership interest in the common elements. In a PUD project, the homeowner's association holds title to the common elements. Homeowner's Insurance An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents. Housing Expense Ratio The percentage of gross monthly income that goes toward paying housing expenses. HUD-1 Statement A document that provides an itemized listing of the funds that are payable at closing. Items that appear on this statement include real estate commissions, loan fee points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet". Back to Top I Income Property Real estate developed or improved to produce income. Index A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage. In-File Credit Report An objective account, normally computer generated, of credit and legal information obtained from a credit repository. Initial Interest Rate The original interest rate of the mortgage at the time of closing. These rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser". Installment The regular periodic payment that a borrower agrees to make to a lender. Installment Loan Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan. Insurance A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy and the periodic payment is known as an insurance premium. Insurance Holder A document stating that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date. Insured Mortgage A mortgage that is protected by the federal Housing Administration (FHA) or by private mortgage insurance (PMI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount. Interest The fee charged for borrowing money. Interest Accrual Rate The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable- rate mortgage (ARM) with payment change limitations. Interest Rate The rate of interest in effect for monthly payment due. Interest Rate Buydown Plan An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate. Interest Rate Ceiling For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note. Interest Rate Floor For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note. Investment Property A property that is not occupied by the owner. IRA (Individual Retirement Account) A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds or mutual funds. Back to Top J Joint Tenancy A form of co-ownership that gives each tenant equal rights in the property, including the right of survivorship. Judgment A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor. Judgment Lien A lien on the property of a debtor resulting from the decree of a court. Jumbo Loan A loan that exceeds Fannie Mae's legislated mortgage amount limits. Also called a nonconforming loan. Back to Top K   L Late Charge The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date. Lease A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent. Leasehold Estate A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it. Lease Purchase Mortgage Loan An alternative financing option that allows for low-and moderate- income homebuyers to lease a home from a non-profit organization with an option to buy. Each months rent payment consists of principal, interest, taxes, and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate. Legal Description A property description recognized by law that is sufficient to locate and identify the property without oral testimony. Liabilities A person's financial obligations. Liabilities include long-term and sort-term debt, as well as any other amounts that are owed to others. Liability Insurance Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. Lien A legal claim against a property that must be paid off when property is sold. Lifetime Payment Cap For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap. Lifetime Rate Cap For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap. Line Of Credit An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit. An asset that is easily converted into cash. Loan A sum of borrowed money (principal) that is generally repaid with interest. Loan Commitment See commitment letter. Loan Origination The process by which a mortgage lender brings into existence a mortgage secured by real property. Loan-To-Value (LTV) Percentage The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent. Lock-In A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing. Lock-In Period The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in. Back to Top M Margin For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change. Maturity The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable. Maximum Financing A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product. Merged Credit Report A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Modification The act of changing any of the terms of the mortgage. Money Market Account A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account. Money Market Fund A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills. Monthly Fixed Installment That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction. Monthly Payment Mortgage A mortgage that requires payments to reduce the debt once a month. Mortgage A legal document that pledges a property to the lender as security for payment of a debt. Mortgage Banker A company that originates mortgages exclusively for resale in the secondary mortgage market. Mortgage Broker An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services. Mortgagee The lender in a mortgage agreement. Mortgage Insurance A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually the entire mortgage loan. See Private Mortgage Insurance (PMI). Mortgage Insurance Premium (MIP) The amount paid by a mortgagor for mortgage insurance, either to a government agency such as Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company. Mortgage Life Insurance A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. Mortgagor The borrower in a mortgage agreement. Back to Top N Negative Amortization A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization. Net Cash Flow The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments. Net Worth The value of all of a person's assets, including cash, minus all liabilities. No Cash-Out Refinance A refinance transaction where the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including pre-paid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and others funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage). Non-Liquid Asset An asset that cannot be easily converted into cash. Note A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time. Note Rate The interest rate stated on a mortgage note. Notice of Default A formal written notice to a borrower that their loan is in default and that legal action may be taken. Back to Top O Original Principal Balance The total amount of principal owned on a mortgage before any payments are made. Origination Fee A fee paid to originator of the loan. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount. Owner Financing A property purchase transaction in which the property seller provides all or part of the financing. Back to Top P Partial Payment A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Payment Change Date The date when a new monthly payment amount takes effect on an adjustable-rate (ARM), or a graduated-payment adjustable period. See cap. Periodic Payment Cap For an adjustable-rate mortgage (ARM), a limit on the amount that the interest can increase or decrease during any one adjustment period. See cap. Periodic Rate Cap For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be. See cap. Personal Property Any property that is not real property. PITI See principal, interest, taxes, and insurance (PITI). PITI Reserves A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months. Planned Unit Development See PUD. Point One-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage. Power of Attorney A legal document that authorizes one person to act on another's behalf. A power of attorney can grant complete authority or can be limited to certain acts/or certain periods of time. Prepayment Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized. Prepayment Penalty A fee that may be charged to a borrower who pays off a loan before it is due. Pre-Qualification The process of determining how much a prospective homebuyer will be eligible to borrower before he or she applies for a loan. Prime Rate The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates. Principal The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage. Principal Balance The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance. Principal, Interest, Taxes, and Insurance (PITI) The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer too the amounts that are paid into an escrow account each month for property taxes, mortgage insurance, and hazard insurance. Private Mortgage Insurance (PMI) Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with loan-to-value (LTV) percentage in excess of 80 percent. Promissory Note A written promise to repay a specified amount over a specified period of time. Planned Unit Development (PUD) A project or subdivision that includes common property that is owned and maintained by a homeowner's association for the benefit and use of the individual PUD unit owners. Purchase Money Transaction The acquisition of property through the payment of money or it's equivalent. Back to Top Q Qualifying Ratios Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: housing expense as a percentage of income ratio and total debt obligations as a percentage of income ratio. Quitclaim Deed A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made. R Rate Lock A commitment issued by the lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. See lock-in. Real Estate Agent A person licensed to negotiate and transact the sale of estate on behalf of the property owner. Real Estate Settlement Procedures Act (RESPA) A consumer protection law that requires lenders to give borrowers advance notice of closing costs. Real Property Land and appurtenances, including anything of a permanent nature such as trees, minerals, and the interest, benefits, and inherent rights thereof. Realtor A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors. Recession The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed. Recording The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record. Refinance Transaction The process of paying off one loan with the proceeds from a new loan using the same property as security. Rehabilitation Mortgage A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property. Remaining Balance The amount of principal that has not yet been repaid. See principal balance. Rent with Option to Buy See lease-purchase mortgage loan. Repayment Plan An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions". Right of First Refusal A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others. Right of Ingress or Egress The right to enter or leave a designated premises. Right of Survivorship In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant. Back to Top S Second Mortgage A mortgage that has a lien position subordinate to the first mortgage. Secondary Mortgage Market The buying and selling of existing mortgage. Secured Loan A loan that is backed by collateral. Security The property that will be pledged as collateral for a loan. Seller Take-Back An agreement in which the owner of the property provides financing, often in combination with an assumable mortgage. See owner financing. Servicer An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market. Servicing The collection of mortgage payments from borrowers and related responsibilities of the loan servicer. Settlement See closing. Settlement Sheet See HUD-1 statement. Standard Payment Calculation The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate. Subdivision A housing development that is created by dividing a tract of land into individual lots for sale or lease. Subordinate Financing Any mortgage or other lien that has a priority that is lower than that of the first mortgage. Survey A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. Sweat Equity Contribution to the construction or rehabilitation of a property using labor or services rather than cash. Back to Top T Tenancy by the Entirety A type of joint tenancy in a property that provides right of survivorship and is available only to the husband and wife. Contrast with tenancy in common. Tenancy in Common A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy. Third-Party Organization A process by which another lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market. See mortgage broker. Title A legal document evidencing a person's right to or ownership of a property. Title Company A company that specializes in examining and insuring titles to real estate. Title Insurance Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property. Title Search A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding. Total Expense Ratio Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts. Trade Equity Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade for all or part of the down payment for the property that is being purchased. Transfer of Ownership Any means by which the ownership or property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an intervivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership. Transfer Tax State or local tax payable when title passes from one owner to another. Treasury Index An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See adjustable-rate mortgage (ARM). Truth-In-Lending A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges. Two to Four Family Property A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed. Trustee A fiduciary who holds or controls property for the benefit of another. Back to Top U Underwriting The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself. Unsecured Loan A loan that is not backed by collateral. Back to Top V VA Mortgage A mortgage that is guaranteed by the Department of Veterans Affairs (VA), also known as a government mortgage. Vested Having the right to use a portion of a fund as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn. Department of Veterans Affairs (VA) An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans. Back to Top W What-if-scenario A change in the amounts that is used as the basis of an affordability analysis. What-if scenarios can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house. Wraparound Mortgage A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee. Back to Top X   Y   Z