Glossary Of Real Estate Terms

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

Acceptance – A buyer’s or
seller’s agreement to enter into a contract and be bound
by the terms of the offer.

Additional Principal Payment – A
payment made by a borrower of more than the scheduled
principal amount due, in order to reduce the outstanding
balance on the loan, to save on interest over the life of
the loan and/or pay off the loan early.

Adjustable Rate Mortgage (ARM)
– stands for Adjustable Rate Mortgage, also referred to
as a Variable Rate Mortgage. They both mean the same
thing. An ARM is a mortgage with an interest rate that
adjusts periodically to reflect changes in market
conditions. Your mortgage payments are adjusted up or
down (usually on an annual basis) as the interest rate
changes. To protect you in a rising interest market, rate
increases are limited (usually 2 percentage points
annually; 6 percentage points over the life of the loan).

Amenity – A feature of real property that enhances
its attractiveness and increases the occupant’s or user’s
satisfaction, although the feature is not essential to
the property’s use. Natural amenities include a pleasant
or desirable location near water, scenic views, etc.
Man-made amenities include swimming pools, tennis courts,
community buildings, and other recreational facilities.

Amortization – The gradual
repayment of a home loan by periodic installments.

Amortization Schedule – A
timetable for payment of a home loan. An amortization
schedule shows the amount of each payment applied to
interest and principal and the remaining balance after
each payment is made.

Amortization Term (period) – The
amount of time it takes to pay off the loan. The
amortization term is expressed as a number of months. For
example, for a 30 year fixed rate loan, the amortization
term is 360 months.

Amortize – To repay a loan
with regular payments that cover both principal and
interest.

Annual Percentage Rate (APR)
– stands for Annual Percentage Rate. This refers to the
interest rate that reflects the actual cost of a mortgage
as a yearly rate. Because APR includes points and other
costs associated with the mortgage, it’s usually higher
than the advertised simple interest rate. The APR more
accurately reflects what you’ll be paying and allows you
to compare different mortgages based on actual costs.

Application (or 1003) – A form to be completed by
a home loan applicant with the lender’s assistance to
provide pertinent information about a prospective
borrower’s employment, income, assets, debts and other
financial information, about the purpose of the home
loan, and about the property securing the home loan.
Lenders also sometimes call it a 1003-the form number of
Fannie Mae’s standard application form.

Application Fee – A fee
usually paid at the time an application is given to a
lender for helping to complete and review an application.
Some lenders collect fees for a property appraisal and a
credit report, instead of an application fee, at the time
of application.

Appraisal – An estimate of
the value of a home, made by a professional appraiser.
The maximum amount of the mortgage is usually based on
the appraisal.

Appraised Value – The dollar figure for a
property’s estimated fair market value, based on an
appraiser’s knowledge, experience, and analysis of the
property and comparable properties near by.

Appraiser – A person
qualified by education, training, and experience to
estimate the value of real property.

Appreciation – An increase
in the value of a property due to changes in market
conditions or other causes. Inflation, increased demand,
home improvement, and sweat equity are all causes of
appreciation. The opposite of depreciation.

Assessed Value – The value
used to determine property taxes, based on a public tax
assessor’s opinion. Contrast with appraised value.

Assessment – The amount of
tax due to local government. May also refer to the amount
due to local government or to common owners of a property
(e.g., a homeowner’s association) for a special payment
to cover expenses for improvements or maintenance, such
as new sewers or roads.

Assessment Rolls – A public
record of the assessed value of property in the taxing
jurisdiction.

Assessor – A public official
who establishes the value of a property for taxation
purposes.

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).

Assumable Loan – A home loan
that allows a new purchaser of the home to take over
(“assume”) the loan obligations of the seller
when a home is sold.

Assumption Clause – A
provision in an assumable loan that allows a buyer to
assume responsibility for the home loan from the seller.
The loan does not need to be paid in full by the original
borrower (seller) upon sale or transfer of the property.

Assumption Fee – The fee
paid to a lender (usually by the buyer) for the lender’s
agreement to start collecting payment from the buyer
instead of the original borrower (seller).

B

Balance Sheet – A financial
statement that shows an individual’s assets, liabilities,
and net worth as of a specific date.

Balloon Loan – A loan that
has level monthly payments that will amortize it over a
stated term (e.g., 30 years) but that requires a lump sum
payment of the entire principal balance at the end of a
shorter term (e.g., 10 years).

Balloon Payment – The final
lump sum payment that is made at the end of the shorter
term for a balloon loan and pays the loan in full.

Bankrupt – A person, firm,
or corporation that is financially unable to pay debts
when due. The debtor seeks relief through a court
proceeding to work out a payment schedule or erase debts.
In some cases, the debtor must surrender control of all
assets to a court-appointed trustee.

Bankruptcy – A proceeding in
a federal court in which a debtor who is financially
unable to pay debts when due seeks relief to work out a
payment schedule or erase debts.

Bill Of Sale – A written
document that transfers title to personal property from
seller to buyer.

Biweekly Payment Loan – A
loan that requires payments to reduce the debt every two
weeks (instead of the standard monthly payment schedule).
The 26 (or possibly 27) biweekly payments are each equal
to one-half of the monthly payment that would be required
if the loan were a standard 30 year fixed rate loan, and
they are usually drafted from the borrower’s bank
account. The result for the borrower is faster
amortization leading to substantial interest savings from
faster principal
reduction.

Bond – An interest-bearing
certificate of debt with a maturity date. A real estate
bond is a written
obligation usually secured by a mortgage or a deed of
trust.

Breach – A violation of
terms of any legal obligation.

Break Even Point – Point at
which total income equals total expenses.

Bridge Loan – A type of
mortgage financing between the termination of one loan
and the start of another loan. For example, a mortgage
secured by the borrower’s present home (which is usually
up 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 a “swing loan.”

Broker – A person who is
normally licensed by the state and who, for a commission
or a fee, assists in negotiating a real estate
transaction or negotiating the terms of a home loan. See
mortgage broker.

Budget – A detailed plan of
income and expenses expected over a certain period of
time. A budget can provide guidelines for managing future
investments and expenses.

Building Code – Local
regulations that specify minimum structural requirements
for design of, construction of, and materials used in a
home or office building. Building codes are based on
safety and health standards.

Buydown Account – An account
in which funds are held so that they can be applied as
part of the monthly loan payment as each payment comes
due during the period that an interest rate buydown plan
is in effect. For example, if a seller agrees to help
reduce a buyer’s monthly payment during the first year of
a loan, the seller may put money in a buydown account
which is then paid to the lender each month to reduce the
buyer’s monthly payment. This is more commonly done
through a buydown paid directly to the lender at closing.

Buydown – A temporary
buydown gives a borrower a reduced monthly payment during
the first few years of a home loan and is typically paid
for in an initial lump sum made by the seller, lender, or
borrower. A permanent buydown is paid the same way but
reduces the interest rate over the entire life of a home
loan.

C

Call Option – A provision in
a loan that gives the lender the right to accelerate the
debt, and require for full payment of the loan
immediately, at the end of a specified period or for
specified reason.

Cap – A provision of an
adjustable-rate mortgage (ARM) that limits how much the
interest rate or loan payments may increase or decrease.
In upward rate markets, it protects the borrower from
large increases in the interest rate or monthly payment.
See lifetime payment cap, lifetime rate cap, periodic
payment cap, and periodic rate cap.

Capital – (1) Money used to
create income, either as an investment in a business or
an income property. (2) The money or property comprising
the wealth owned or used by a person or business
enterprise. (3) The accumulated wealth of a person or
business. (4) The net worth of a business represented by
the amount by which its assets exceed liabilities.

Capital Expenditure – The
cost of an improvement made to extend the useful life of
a property or to add to its value, such as adding a room.
The cost of repairing a property is not a capital
expenditure. Capital expenditures are appreciated over
their useful life; repairs are subtracted from income for
the current year.

Capital Improvement – Any
structure or component erected as a permanent improvement
to real property that adds to its value and useful life.
See Capital Expenditure.

Cash Available For Closing – Borrower
funds available to cover down payment and closing costs.
If lending guidelines require the borrower to have cash
reserves at the time the loan closes or that the down
payment come from certain sources, borrower’s cash
available for closing does not include cash reserves or
money from other sources.

Cash Flow Basis – This
calculation shows when your monthly payment savings
exceed your estimated closing costs and discount points.
It does not consider the tax impact or differences in
principal balance reduction between your current loan and
the refinance suggestions. You can use the Amortization
Schedule Calculator to compare principal reduction.

Cash For Transaction – Enter
the amount your want to use toward closing costs
(discount points and fees) and/or to reduce your loan
balance. In situations where your loan balance is above
the conforming amount, reducing the principal may allow
you to get a lower rate. Enter zero if you want a
no-point loan and/or to finance the closing fees.

Cash-Out Refinance – A
refinance transaction in which the new loan amount
exceeds the total of the principal balance of the
existing first mortgage and any secondary mortgages or
liens, together with closing costs and points for the new
loan. This excess is usually given to the borrower in
cash and can often be used for debt consolidation, home
improvement, or any other purpose. The borrower
effectively borrows against the home equity.

Ceiling – The maximum
interest rate that can accrue on a variable rate loan or
adjustable rate mortgage (ARM). See lifetime rate cap.

Certificate Of Eligibility – A
document issued by the federal government certifying a
veteran’s eligibility for a Department of Veterans
Affairs (VA) loan.

Certificate Of Reasonable Value
(CRV) –
A document issued by the Department of
Veterans Affairs (VA) that establishes the maximum value
and loan amount for a VA loan, based on an approved
appraisal.

Certificate Of Title – A
statement provided by an abstract company, title company,
or attorney stating who holds title to real estate based
on the public record.

Chain Of Title – The history
of all of the documents affecting title to a parcel of
real property, starting with the earliest existing
document and ending with the most recent.

Clear Title – A title that
is marketable and is free of liens or disputed legal
questions as to ownership of the property.

Closing – The conclusion or
consummation of a transaction. In real estate, closing
includes the delivery of a deed, the signing of notes and
security instruments, and the disbursement of funds
necessary to the sale or loan transaction. Also referred
to as settlement.

Closing Cost Item – A fee or
amount that a home buyer must pay at closing for a
particular 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
settlement statement.

Closing Costs – Various
expenses (over and above the price of the property)
incurred by buyers and sellers in transferring ownership
of a property. Closing costs normally include items such
as broker’s commissions, discount points, origination
fees, attorney’s fees, taxes, title insurance premiums,
escrow agent fees, and charges for obtaining appraisals,
inspections and surveys. Closing costs will vary
according to the area of the country. Lenders or real
estate professionals often provide estimates of closing
costs to prospective home buyers even before the HUD-1
settlement statement is delivered.

Closing Statement – An
accounting of funds given to both buyer and seller before
real estate is sold. See HUD-1 settlement statement.

Cloud On Title – An
outstanding claim or lien, revealed by a title search,
that adversely affects the owner’s title to real estate.
Usually, clouds on title cannot be removed except by a
quit claim deed, release, or court action.

Coinsurance – A sharing of
insurance risk between the insurer and the insured.
Coinsurance depends on the relationship between the
amount of the policy and a specified percentage of the
actual value of the property insured at the time of the
loss.

Coinsurance Clause – A
provision in a hazard insurance policy stating the
minimum amount of coverage that must be maintained – as a
percentage of the total value of the property – in order
for the insured to collect the full amount of a loss.

Combined Loan To Value (CLTV) – The
ratio of the total amount borrowed on all mortgages
against a property compared to the appraised value of the
property. For example, if you have an $80,000 1st
mortgage and a $10,000 2nd mortgage on a home with an
appraised value of $100,000, the CLTV is 90%
($80,000+$10,000 = $90,000 / $100,000 = 90%).

Commission – The fee charged
by a broker or agent for negotiating a real estate or
loan transaction. A commission is generally a percentage
of the price of the property or loan (such as 3%, 5%, or
6%).

Commitment Letter – A formal
notification from a lender stating that the borrower’s
loan has been conditionally approved and specifying the
terms under which lender agrees make the loan. Also known
as a “loan commitment.”

Common Area Assessments – Payments
required of individual unit owners in a condominium or
planned unit development (PUD) project for additional
capital to defray homeowners’ 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 homeowners’ association (or a
cooperative project’s cooperative corporation) that are
used by all of the unit owners, who share in the common
expenses of their operation and maintenance. Common areas
include swimming pools, tennis courts, and other
recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress,
etc.

Community Property – In some
Western and Southwestern states, the law specifies that
property acquired during a marriage is presumed to be
owned jointly by the husband and wife unless acquired as
separate property of one spouse or the other.

Community Seconds� – An
alternative financing option for low- and moderate-income
households under which an investor purchases a first
mortgage that has a subsidized second mortgage behind it.
The second mortgage may be issued by a state, county, or
local housing agency, foundation, or nonprofit
organization. Payment on the second mortgage is often
deferred and carries a very low interest rate (or no
interest rate at all). Part or all of the second mortgage
debt may be forgiven depending on how long the buyer
remains in the home.

Comparables (comps) – An
abbreviation for “comparable properties”; used
for comparative purposes in the appraisal process.
Comparables are properties like the property under
consideration; they have reasonably the same size,
location, and amenities and have recently been sold.
Comparables help the appraiser determine the approximate
fair market value of the subject property.

Compound Interest – Interest
paid on the principal balance and on the accrued and
unpaid interest.

Condemnation – (1)
Declaration that a building is unfit for use or is
dangerous and must be destroyed; (2) taking of private
property for a public use (such as a park, street or
school) 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
multi-unit building, an 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.

Condominium Hotel (condotel) – A
condominium project that has rental or registration
desks, short-term occupancy, food and telephone services,
and daily cleaning services and that is operated as a
commercial hotel even though the units are individually
owned.

Conforming Loan – A home
loan with a maximum loan amount of $252,700 that is
eligible for purchase by FNMA and FHLMC.

Construction loan – A
short-term, interim loan for financing the cost of home
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
lenders use to determine a potential borrower’s credit
history. The agency obtains data for these reports from a
credit repository as well as from creditors such as
mortgage lenders, credit card companies, department
stores, etc.

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 not do something.

Conventional Loan – A home
loan that is not insured or guaranteed by the federal
government. Contrast with government loan. Can be for
conforming or non-conforming loan amounts.

Convertibility Clause – A
provision in some adjustable rate mortgages (ARMs) that
allows the borrower to change the ARM to a fixed rate
loan at specified times during the life of the loan.

Convertible ARM – An
adjustable rate mortgage (ARM) that can be converted to a
fixed rate loan under specified conditions.

Cooperative (co-op) – A type
of multiple ownership in which the residents of a
multi-unit housing complex own shares in the cooperative
corporation that owns the property, giving each resident
the right to occupy a specific apartment or unit.

Corporate Relocation – Arrangements
under which an employer moves an employee to another area
as part of the employer’s normal course of business or
under which it transfers a substantial part or all of its
operations and employees to another area because it is
relocating its headquarters or expanding its office
capacity.

Co-Signer – A person who
signs a promissory note along with the borrower. A
co-maker’s signature helps to assure that the loan will
be repaid. The borrower and the co-maker are jointly
responsible
for the repayment of the loan.

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).

Covenant – A promise in a
mortgage or deed that requires or prevents certain uses
of the property that, if violated, may result in loss or
foreclosure of the property.

Credit – An agreement in
which a borrower receives money or something of value in
exchange for a promise to repay the lender on specified
terms at a later time.

Credit History – An
evaluation of an individual’s capacity and history of
debt repayment. A credit history helps a lender to
determine whether a potential borrower is likely to repay
a loan in a timely manner.

Credit Life Insurance – A
type of insurance that pays off a loan if one of the
borrowers dies while the policy is in force.

Credit Limit – The maximum
amount that can be borrowed under the home equity line of
credit.

Creditor – A person to whom
money is owed.

Credit Rating – An
expression of creditworthiness based upon present
financial condition and past credit history.

Credit Report – A detailed
account of the credit, employment and residence history
of an individual used by a prospective lender to help
determine creditworthiness. Credit reports also list any
judgments, tax liens, bankruptcies or similar matters of
public record entered against the individual.

Credit Repository (credit
bureau) –
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.

Credit Scoring – Credit
scores are numerical values that rank individuals
according to their credit history at a given point in
time. Your score is based on your past payment history,
the amount of credit you have outstanding, the amount of
credit you have available, and other factors. According
to Fannie Mae–one of the major investors in home loans,
credit scores have proven to be very good predictors of
whether a borrower will repay his or her loan.

Cumulative Interest – Total
interest accrued.

Current PITI – This is an
abbreviation for a monthly payment that includes
principal, interest, taxes and insurance. In mortgage
lending it is common for the monthly mortgage payment to
include not only the principal and interest payment on
the loan, but an escrow amount for real estate taxes and
hazard insurance as well.

Curtailment – A payment that
reduces the principal balance of a loan.

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 borrower to the lender 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
vested in a trustee to secure repayment of the loan.

Default – Failure to make
loan payments on a timely basis or to comply with other
requirements of a mortgage.

Delinquency – Failure to
make mortgage payments when 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 property because of physical or economic
changes such as wear and tear; the opposite of
appreciation.

Discount Points – Amounts
paid to the lender at origination to lower the rate on
the face of the note. See point.

Document Preparation – This
fee covers the expenses associated with this process of
preparing some of the legal documents that you will be
signing at the time of closing, such as the mortgage,
note, and truth-in-lending statement.

Down Payment – The part of
the purchase price of a property that the buyer pays in
cash and does not finance with a home loan.

Draw Period – The time
period in which the borrower may access and use a line of
credit.

Due-On-Sale Provision – A
provision in a mortgage home loan that allows the lender
to demand repayment in full if the borrower sells the
property that serves as security for the loan.

Due-On-Transfer Provision – This
terminology is usually used for second mortgages. See
due-on-sale provision.

E

Earnest Money Deposit (Earnest
Money) –
A deposit made by the potential home buyer
to show that he or she is serious about buying the house.

Easement A right of way
giving to persons other than the owner to access to or
over a property.

Effective Age – An
appraiser’s estimate of the physical condition of a
building. The actual age of a building may be shorter or
longer than its effective age.

Eminent Domain – The right
of a government to take private property for public use
upon payment of fair compensation to the owner. Eminent
domain is the basis for condemnation proceedings.

Employer-Assisted Housing A
special Fannie Mae housing initiative that offers several
different ways for employers to work with local lenders
to develop plans to assist their employees in purchasing
homes.

Encroachment – An
improvement that physically intrudes or trespasses on
another’s property.

Encumbrance – Anything that
affects or limits the fee simple title to a property,
such as mortgages, leases, easements, deeds, or
restrictions.

Endorser – A person who
signs a check or promissory note over to another party.
Contrast with co-signer.

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 – The value of your
home after the outstanding balance of any loans are
subtracted. If you make a 5 percent down payment, you
have 5 percent of the price of your home in equity. As
you make payments toward principal over time, the equity
in your home grows.

Escrow – Can serve two
purposes. 1)As a special third-party account set up by
the lender in which a portion of your monthly payment
funds are held to pay for taxes and insurance and other
items. 2)Escrow is most commonly known as a third party
who carries out the instructions of both the buyer and
seller to handle the paperwork at the settlement of a
real estate purchase.

Escrow (or Impound) Account – The
account in which a loan servicer holds the borrower’s
escrow payments prior to paying property expenses, such
as property taxes or homeowners insurance.

Escrow Analysis – The
periodic examination of escrow accounts to determine if
current monthly deposits will provide sufficient funds to
pay taxes, insurance, and other bills when due.

Escrow Collections – Funds
collected by the loan servicer and set aside in an escrow
account to pay borrower expenses such as property taxes,
mortgage insurance, and hazard homeowners insurance.

Escrow Disbursements – The
use of escrow funds to pay real estate taxes, homeowners
insurance, mortgage insurance, and other property
expenses as they become due.

Escrow Payment – The portion
of a borrower’s monthly payment that is held by the loan
servicer to pay for taxes, hazard homeowners 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 – A legal
proceeding by a landlord to recover possession of real
property from the tenant.

Examination Of Title – The
report on the title of a property from the public records
or an abstract of the title.

Exclusive Listing – A
written contract that gives a licensed real estate agent
the exclusive right to sell a property for a specified
time, but reserving the owner’s right to sell the
property alone without the payment of a commission.

F

Fair Credit Reporting Act – A
consumer protection law that regulates the disclosure and
use of consumer credit information, establishes rules for
credit reporting to consumer credit reporting agencies,
and establishes procedures for a consumer to view his or
her credit report and correct mistakes on it.

Fair Market Value – The
price that a buyer, willing but not compelled to buy, and
a seller, willing but not compelled to sell, would agree
on.

Fannie Mae (Federal National
Mortgage Association FNMA) –
A New York Stock
Exchange company and the largest non-bank financial
services company in the world. It operates pursuant to a
federal charter and is the nation’s largest source of
financing for home mortgages. It adds liquidity to the
mortgage market by investing in home loans through the
country.

Federal Housing Administration
(FHA) –
An agency of the U.S. Department of Housing
and Urban Development (HUD). Its main activity is the
insuring of residential mortgage loans made by private
lenders. The FHA sets standards for construction and loan
underwriting but does not lend money or plan or construct
housing.

Fee Simple – An
unconditional, unlimited estate of inheritance that
represents the greatest estate and most extensive
interest in land that can be enjoyed. It is of perpetual
duration. When the real estate is in a condominium
project, the unit owner is the exclusive owner only of
the air space within his or her portion of the building
(the unit) and is an owner in common with respect to the
land and other common portions of the property.

FHA Coinsured Home Loan – A
loan (under FHA Section 244) for which the Federal
Housing Administration (FHA) and the originating lender
share the risk of loss in the event of the borrower’s
default.

FHA Home Loan – A mortgage
home loan that is insured by the Federal Housing
Administration (FHA). Also known as a government loan.

Filing Status – Please enter
here whether you file your income taxes as single,
married, separated or head-of household.

Firm Commitment – A lender’s
agreement to make a loan to a specific borrower on a
specific property.

First Mortgage (Home Loan) – A
home loan that is the primary lien against a property.

Fixed Installment – The
monthly payment due on a mortgage loan. The fixed
installment includes payment of both principal and
interest.

Fixed Period ARM – Provides
a fixed rate for 3, 5, 7 or 10 years then adjusts
annually based on a financial index for the remaining
loan term.

Fixed Rate Mortgage – A
mortgage with an interest rate that stays the same
(fixed) over the life of the mortgage. Monthly payments
for a fixed rate mortgage are very stable and will not
change.

Fixture – Personal property
that becomes real property when attached in a permanent
manner to real estate (such as a lighting fixture or an
in-ground spa).

Flood Check – A survey
conducted to determine whether a property is in a flood
zone.

Flood Insurance – Insurance
that compensates for physical property damage resulting
from flooding. It is required for properties located in
federally designated flood areas.

Foreclosure – The legal
process by which a borrower’s interest in mortgaged
property is taken because of a default on the loan. This
usually involves a forced sale of the property at public
auction with the proceeds of the sale being applied to
the mortgage debt.

Forfeiture – The loss of
money, property, rights, or privileges due to a breach of
legal obligation.

401(k)/403(b) – An
employer-sponsored investment plan that allows
individuals to set aside tax-deferred income for
retirement or emergency purposes. 401(k) plans are
provided by employers that are private corporations.
403(b) plans are provided by employers that are
not-for-profit organizations.

401(k)/403(b) Loan – Some
administrators of 401(k)/403(b) plans allow for loans
against the monies accumulated in these plans – monies
must be repaid to avoid serious penalty charges.

Freddie Mac (Federal Home Loan
Mortgage Corporation) –
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.

G

Good Faith Estimate – A
document provided when you apply for a loan. It provides
estimates of all costs associated with obtaining and
closing a mortgage loan.

Government Loan – A loan
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 loan.

Government National Mortgage
Association (GNMA or Ginnie Mae) –
A government-owned
corporation within the U.S. Department of Housing and
Urban Development (HUD). Created by Congress on September
1, 1968, GNMA assumed responsibility for the special
assistance loan programs formerly administered by Fannie
Mae.

Grantee – The person to whom
an interest in real property is conveyed (e.g. the
buyer).

Grantor – The person who
conveys an interest in real property (e.g. the seller).

Gross Monthly Income – Normal
annual income including overtime that is regular or
guaranteed. The before taxes income may be from more than
one source. Salary is generally the principal source, but
other income may qualify if it is significant and stable.

Ground Rent – The amount of
money that is paid for the use of land when title to a
property is held as a leasehold estate rather than as a
fee simple estate.

Group Home A single-family
residential structure designed or adapted for occupancy
by unrelated developmentally disabled persons. The
structure provides long-term housing and support services
that are residential in nature.

H

Homeowner’s Insurance (Hazard
Insurance)
– Insurance coverage that compensates for
physical damage to a property from fire, wind, vandalism,
or other hazards. The policy typically combines personal
liability insurance and property hazard insurance
coverage for a dwelling and its contents. See also
homeowner’s insurance.

Home Equity Line Of Credit
(HELOC) –
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 of the borrower’s equity in a property.

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.

Homeowners’ Association – A
nonprofit association that manages the common areas of a
planned unit development (PUD) or condominium project. In
a condominium project, it has no ownership interest in
the common elements. In a PUD project, it holds title to
the common elements. See also master association.

Homeowner’s Insurance – Insurance
coverage that compensates for physical damage to a
property from fire, wind, vandalism, or other hazards.
The policy typically combines personal liability
insurance and property hazard insurance coverage for a
dwelling and its contents.

Homeowner’s Warranty (HOW) – A
type of insurance that covers repairs to specified parts
of a house for a specific period of time. It may be
provided by the builder or property seller as a condition
of the sale but homeowners can also purchase it.

Housing Expense Ratio – The
percentage of gross monthly income that goes toward
paying housing expenses.

HUD Median Income – Median
family income for a particular county or metropolitan
statistical area (MSA), as estimated by the Department of
Housing and Urban Development (HUD).

HUD-1 Settlement Statement
A document that provides an itemized listing of the funds
that are payable at closing. Items that appear on the
statement include real estate commissions, loan fees,
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 the 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.”

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. Some lenders provide caps that limit how much the
interest rate or loan payments may increase or decrease.

In-File Credit Report – An
objective account, normally computer-generated, of credit
and other financial information obtained from a credit
reporting agencies.

Inflation – An increase in
the amount of money or credit available in relation to
the amount of goods or services available, which causes
an increase in the general price level of goods and
services. Over time, inflation reduces the purchasing
power of a dollar, making it worth less.

Initial Draw Amount – The
amount of the home equity line of credit that the
borrower is requesting at closing (up to, but never
exceeding, the credit line amount).

Initial Interest Rate – The
starting interest rate for an adjustable-rate mortgage
(ARM) loan or variable-rate home equity line of credit.
At the end of the effective period for the initial rate,
the interest rate adjusts periodically during the life of
the loan based on changes in a specified financial index.
Sometimes known as “start rate,” “intro
rate” or “teaser rate.”

Introductory Rate – The
starting rate for a home equity loan or line of credit,
usually a discounted rate, for a short period of time.
See initial interest rate.

Installment Loan – Borrowed
money that is repaid in equal payments, known as
installments. A furniture loan is often paid for as an
installment loan.

Insurable Title – A property
title that a title insurance company agrees to insure
against defects and disputes.

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 Binder – A
document that states 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 amount the
lender charges to lend you 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.

Interest Payment – The
portion of a monthly payment that goes to interest based
on the amortization schedule.

Interest Rate – The
percentage rate of return charged for use of a sum of
money. This percentage rate is specified in the mortgage
note. See note rate.

Interest Rate Buydown Plan – A
temporary buydown gives a borrower a reduced monthly
payment during the first few years of a home loan and is
typically paid for in an initial lump sum made by the
seller, lender, or borrower. A permanent buydown is paid
the same way but reduces the interest rate over the
entire life of a home loan.

Investment Property – A
property that is not occupied by the owner and is
generally rented to a tenant to produce income.

J

Joint Tenancy – A form of
co-ownership that gives each tenant equal undivided
interest and rights in the property, including the right
of survivorship. Contrast with tenancy in common, tenancy
by the entirety.

Judgment – A decree by a
court of law that one person, a debtor, is indebted to
another, a creditor, in a specified amount. The court may
place a lien against the debtor’s real property as
collateral for payment of the judgment to the creditor.

Judgment Lien – A lien on
the property of a debtor resulting from a judgment.

Judicial Foreclosure – A
type of foreclosure proceeding used in some states that
is handled as a civil lawsuit where the court confirms
the sales price for the property and the distribution of
the sale proceeds.

Jumbo Loan – Any loan amount
in excess of $252,700. Also called a nonconforming loan.

L

Late Charge – The penalty a
borrower must pay when a payment is made a stated number
of days (usually 10-15) after the due date.

Lease – A written agreement
between the property owner and a tenant that stipulates
the conditions under which the tenant may use the real
estate for a specified period of time and the amount of
rent to be paid.

Leasehold Estate – A
tenant’s interest in or right to hold possession of a
property.

Legal Description – A
property description, recognized by law, using a
government rectangular survey, metes and bounds, or a
plot map to sufficiently locate and identify a property.

Lender’s Fees – Fees paid to
the lender to cover costs associated with processing,
underwriting and closing of the loan.

Lending Guidelines – Every
loan program has different guidelines. Guidelines are
used to meet Federal, State and Local laws and enforce
minimum requirements by the lender. Guidelines ensure
that prospective borrowers won’t purchase a home that
they won’t be able to afford.

Liabilities – A person’s
debts or financial obligations. Liabilities include
long-term and short-term debt, as well as potential
losses from legal claims.

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. See also homeowners insurance.

Lien – A legal claim against
a property that must be paid off when the property is
sold. A lien is created when you borrow money to purchase
or refinance a home loan or and with obtain a home equity
loan.

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/Loan Amount – The
entire HELOC or Fixed Rate Second mortgage loan amount.

Line Of Credit – An
agreement by a lender to extend credit up to a certain
amount for a certain time without the need for the
borrower to file another application. See home equity
line of credit.

Liquid Asset – A cash asset
or an asset that is easily converted into cash.

Loan Amount – The amount of
money you want to borrow to purchase or refinance a home.
Also called the principal and is generally repaid over
time with interest.

Loan Commitment – A lender’s
agreement to advance money on specified terms after
specified conditions are met. See commitment letter.

Loan Origination – The
process by which a mortgage lender makes a home loan and
records a mortgage against the borrower’s real property
as security for repayment of the loan.

Loan Program – Typically a
lender will have several types of loan programs
available. They are described in accordance with the
major features of the loan program. For example, a loan
described as a “Fixed 30 Year” would mean that
the interest rate and payment remain fixed over the
thirty year life of the loan. A program described as
“Fixed/ARM 5/1″ means that the interest rate
and payment remain fixed for the first five years, and
then it is subject to adjustments every year thereafter.

Loan-To-Value Ratio – The
ratio of the total amount borrowed on a mortgage against
a property compared to the appraised value of the
property. For example, if you have an $80,000 1st
mortgage on a home with an appraised value of $100,000,
the LTV is 80% ($80,000 / $100,000 = 80%).

Lock-In – A written
agreement in which the lender guarantees a specified loan
program interest rate and points if a mortgage goes to
closing within a set period of time.

Lock-In Period – The time
period during which the lender has guaranteed an interest
rate to a borrower. See lock-in.

M

Margin – For an
adjustable-rate mortgage (ARM) or home equity line of
credit, 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.
The margin is static and will not change during the life
of the loan.

Master Association – A
homeowners’ association in a large condominium or planned
unit development (PUD) project that is made up of
representatives from associations covering specific areas
within the project. In effect, it is a
“second-level” association that handles matters
affecting the entire development, while the
“first-level” associations handle matters
affecting their particular portions of the project.

Maturity – The date on which
the principal balance of a loan, bond, or other financial
instrument becomes due and payable. At the maturity of a
30-year loan the principal balance will be paid in full.

Maximum Financing – The
maximum amount a lender will lend on a specific loan
program.

Maximum Rate – The maximum
interest rate that can accrue on a variable rate loan

Merged Credit Report – A
credit report that contains information from more than
one credit reporting agency. When the report is created,
the information is compared for inconsistencies and
duplicate entries. Any duplicates are combined to provide
a summary of a your credit.

Minimum Payment – The
minimum amount that must be paid monthly on an account.
On the HELOC product, the minimum payment is interest
only during the draw period. On the Fixed Rate Second
products, the minimum payment is principal and interest.

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 Debt – A borrower’s
monthly expenses including credit cards, installment
loans, student loan payments, alimony and child support
and housing payment expense.

Monthly Mortgage Insurance (MI)
Payment –
Portion of monthly payment that covers the
cost of Private Mortgage Insurance.

Monthly Principal & Interest
(P&I) Payment –
Portion of monthly payment that
covers the principal and interest due on the loan.

Monthly Taxes & Insurance
(T&I) Payment –
Portion of monthly payment that
funds the escrow or impound account for taxes and
insurance.

Monthly Payment (P&I) – This
is the monthly mortgage payment on a home loan, this
includes principal and interest, but excludes any amounts
that are applied to taxes and insurance.

Mortgage – A legal document
that pledges a property to the lender as security for
payment of a debt.

Mortgage Banker – A company
that originates, sells and services 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
borrower’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 all of the mortgage loan. See
private mortgage insurance (PMI).

Mortgage Insurance Premium (MIP)
The amount paid by a borrower for mortgage
insurance, either to a government agency such as the
Federal Housing Administration (FHA) or to a private
mortgage insurance (MI) company.

Mortgage Life Insurance – A
type of term life insurance sometimes bought by
borrowers. The amount of coverage decreases as the loan’s
principal balance declines. In the event that the
borrower dies while the policy is in force, the debt is
automatically satisfied by insurance proceeds. See credit
life insurance.

Mortgagor – The borrower in
a mortgage agreement.

Multi-Dwelling Units – Properties
that provide separate housing units for more than one
family, although they secure only a single mortgage.
Typically a 2-4 unit property.

N

Negative Amortization – An
increase in the outstanding balance of a mortgage that
occurs when the monthly payment is not large enough to
cover the 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.

No Closing Cost Loan – A
loan in which the fees the borrower(s) are not required
to pay cash out-of-pocket at closing for the normal
closing costs. The lender typically includes the closing
costs in the principal balance or charges a higher
interest rate than for a loan with closing costs to cover
the advance of closing costs.

Net Worth – The value of all
of a person’s assets, including cash, minus all
liabilities.

Non-Conforming Loan – See
jumbo loan.

Non-Liquid Asset – An asset
that cannot easily be converted into cash.

“No Out Of Pocket
Cost” Loan –
A loan in which the fees the
borrower(s) are not required to pay cash out-of-pocket at
closing for the normal closing costs. The lender
typically includes the closing costs in the principal
balance or charges a higher interest rate than for a loan
with closing costs to cover the advance of closing costs.

Notary – An official
authorized by law to attest and certify certain documents
by his or her hand and official seal.

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 a default has occurred
and that legal action may be taken.

O

Original Principal Balance – The
total amount of principal owed on a mortgage before any
payments are made.

Origination Fee – A fee paid
to a lender for processing a loan application, making a
home loan, and recording a mortgage against the
borrower’s real property as security for repayment of the
loan. The origination fee is stated in the form of
points. One point is 1% of the mortgage amount (e.g.,
1,000 on a $100,000 loan).

Owner Financing – A property
purchase transaction in which the property seller
provides all or part of the financing and takes back a
security instrument.

P

Partial Payment – A payment
that is not sufficient to cover the scheduled monthly
principal and interest payment on a mortgage loan.

Payment (P&I) – Your
monthly mortgage payment, including principal and
interest, but excluding Tax and insurance payments.

Payment Change Date – The
date when a new monthly payment amount takes effect on an
adjustable rate mortgage (ARM). Generally, the payment
change date occurs in the month immediately after the
adjustment date and the borrower is notified 30 days
prior as to the new rate.

Payoff – To pay the
outstanding balance of a loan in full.

Periodic Payment Cap – A
provision of an adjustable-rate mortgage (ARM) that
limits how much the interest rate or loan payments may
increase or decrease. In upward rate markets, it protects
the borrower from large increases in the interest rate or
monthly payment at each adjustment period. See cap.

Periodic Rate Cap – A
provision of an adjustable-rate mortgage (ARM) that
limits how much the interest rate or loan payments may
increase or decrease. In upward rate markets, it protects
the borrower from large increases in the interest rate or
monthly payment at each adjustment period. See cap.

Personal Property – Any
property that is not real property or is not permanently
fixed to land. Cash, furniture, and cars are all examples
of personal property.

Piggyback – A combination of
two loans. Example: A loan is made for 90% of the home
price. 80% of the purchase price is supplied by a 1st
mortgage and 10% by a 2nd mortgage. The 2nd mortgage is
piggybacked on the 1st.

PITI – An abbreviation for
the parts of a typical monthly mortgage payment. PITI
stands for principal-Interest-Taxes-Insurance. See
principal, interest, taxes, and insurance.

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.

PMI – Stands for Private
Mortgage Insurance. PMI is an insurance policy the
borrower buys to protect the lender from non-payment of
the loan. PMI policies are usually required if you make a
down payment that is below 20% of the sales price of the
home.

Points (Loan Discount
Points) – Points are prepaid interest on your mortgage. A
one-time fee charged by the lender at the time of closing
for originating a loan. Each point is 1% of the loan
amount – that is, 2 points on a $100,000 mortgage would
be $2,000.

Power Of Attorney – A legal
document authorizing one person to act on another’s
behalf. A power of attorney can grant complete authority
or can be limited to certain acts and/or certain periods
of time.

Pre-Approval – A lender’s
conditional agreement to lend a specific amount on
specific terms to a homebuyer. (subject to satisfactory
appraisal and no change in financial condition). You can
shop with assurance, because you’ll know up-front how
large a loan you could qualify for.

Preforeclosure Sale –A
procedure in which the investor allows a mortgagor to
avoid foreclosure by selling the property, typically for
less than the amount that is owed to the lender.

Pre-Paid Items (Prepaids) – Items
required by lender to be paid at closing prior to the
period they cover such as prorated property taxes,
homeowners insurance and pre-paid interest.

Pre-Paid Interest – Mortgage
interest that is paid in advance of when it is due.

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. Generally, a prepayment penalty is
added to a loan in exchange for a discounted rate.

Pre-Qualification – A
preliminary analysis of a borrower’s ability to afford
the purchase of a home. An affordability analysis takes
into consideration factors such as income, liabilities,
and available funds, along with the type of home loan,
the likely taxes and insurance for the home, and the
estimated closing costs.

Primary Residence – The
place someone lives most of the time.

Prime Rate – The interest
rate that banks charge on short-term loans to its most
creditworthy 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 on a mortgage. The principal balance
does not include interest or any other charges. See
remaining balance.

Principal, Interest, Taxes, and
Insurance (PITI) –
Four potential 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 to the amounts that may
be paid into an escrow account each month for property
taxes and mortgage and hazard insurance.

Principal Payment – Portion
of your monthly payment that reduces the remaining
balance of a home loan.

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 a loan-to-value (LTV)
percentage in excess of 80 %.

Processing – The preparation
and documentation of a mortgage loan application for
underwriting.

Promissory Note – A written
promise to repay a specified amount over a specified
period of time.

Property Value – LTV or Loan
to Value Ratio refers to the relationship between the
unpaid principal balance of the mortgage and the
property’s appraised value (or sales price if it is
lower).

Public Auction – A meeting
in an announced public location to sell property to repay
a mortgage that is in default.

PUD (Planned Unit Development) –
A project or subdivision that includes common
property that is owned and maintained by a homeowners’
association for the benefit and use of the individual PUD
unit owners.

Purchase Agreement – A
written contract signed by the buyer and seller stating
the terms and conditions under which a property will be
sold.

Purchase Money Transaction – A
loan used in part as payment for a purchase. A loan that
is used to buy a home is called a purchase money
mortgage.

Purchase Price – The total
amount paid for a home.

Q

Qualifying Ratios – Calculations
that are used in determining whether a borrower can
qualify for a mortgage. They consist of two separate
calculations: a housing expense as a percent of income
ratio and total debt obligations as a percent of income
ratio.

Quit Claim Deed – A deed
that transfers, without warranty of ownership, whatever
interest or title a grantor may have at the time the
conveyance is made.

R

Rate – This is the annual
interest rate applied to the outstanding balance of the
loans.

Rate Reduction Option – A
fixed-rate mortgage that includes a provision that gives
the borrower an option to reduce the interest rate
(without refinancing) at a later date. It is similar to a
prearranged refinancing agreement, except that it does
not require re-qualifying.

Rate Lock – A commitment
issued by a lender to a borrower guaranteeing a specified
interest rate for a specified period of time. See
lock-in.

Real Estate Agent – A person
who is normally licensed by the state and who, for a
commission or a fee, assists in negotiating a real estate
transaction.

Real Estate Settlement
Procedures Act (RESPA) –
A consumer protection law
that, among other things, requires advance disclosure of
settlement costs to home buyers and sellers, prohibits
certain types of referral and other fees, sets rules for
escrow accounts, and requires notice to borrowers when
servicing of a home loan is transferred.

Real Property – Land and
appurtenances, including anything of a permanent nature
such as structures, 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®.

Recording – Filing a
document in the public records, thereby giving
constructive notice to the world of the existence of the
document and its contents.

Reduced Documentation – A
method used to determine income when qualifying a
borrower(s) for a loan. Borrower(s) provide their income,
however no verification documentation is typically
required.

Rescission – The act of
cancellation or annulment of a transaction or contract by
the operation of a law. Borrowers usually have the option
to cancel certain credit transactions, including a
refinance or home equity transaction, within three
business days after consummation (when the consumer
becomes contractually obligated by, for example, signing
the loan documents).

Recorder – The public
official who keeps records of transactions that affect
real property in the area. Sometimes known as a
“Registrar of Deeds” or “County
Clerk.”

Recording – The noting in a
book of public record of the terms of a legal document
affecting title to real property, such as a deed, a
mortgage note, a satisfaction of mortgage, or an
extension of mortgage.

Refinance Transaction – The
process of paying off one loan with the proceeds from a
new loan, typically using the same property as security
for the new loan.

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.

Remaining Term – The
original amortization term minus the number of payments
that have been applied.

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 often
called “relief provisions.”

Revolving Liability – A
credit arrangement, such as a credit card or HELOC, that
allows a customer to borrow against a predetermined line
of credit when purchasing goods and services. The
borrower makes payments on the amount that is actually
borrowed plus any interest due.

Request For Notice of Default – A
recorded document that obligates the holder of the first
mortgage lien to notify subordinate lien holders in the
event of default by the borrower.

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 designated premises.

Right Of Survivorship – In
joint tenancy, the right of survivors to acquire the
interest of a deceased joint tenant.

Rural Housing Service (RHS) – An
agency within the Department of Agriculture. This agency
provides financing to farmers and other qualified
borrowers buying property in rural areas who are unable
to obtain loans elsewhere. Funds are borrowed from the
U.S. Treasury.

S

Sale-Lease Back – A
technique in which a seller deeds property to a buyer for
a consideration, and the buyer simultaneously leases the
property back to the seller.

Second Home – A property
occupied part-time by a person in addition to his or her
primary residence.

Second Mortgage – A mortgage
that has a lien position subordinate to the first
mortgage.

Secondary Mortgage Market – An
informal market where lenders and investors buy and sell
existing mortgages. Government-sponsored entities and
private investors buy mortgages from lenders who use the
proceeds to make additional loans.

Secured Loan – A loan that
is backed by collateral. If the borrower defaults, the
lender can sell the collateral to satisfy the debt.

Security – The property that
will be pledged as collateral for a loan. If the borrower
defaults, the lender can sell the collateral to satisfy
the debt.

Security Interest – An
interest a lender takes in the borrower’s property to
assure repayment of a debt. If the borrower defaults, the
lender can sell the collateral to satisfy the debt.

Seller Take-Back – An
agreement in which the owner of a 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’ tax and insurance escrow
accounts. A mortgage banker is often paid a fee to
service mortgages that have been purchased by an investor
in the secondary mortgage market.

Servicing – The collection
of principal and interest payments from borrowers and
management of borrowers’ tax and insurance escrow
accounts.

Settlement – See closing.

Settlement Sheet – See HUD-1
settlement statement.

Single Family Residence – A
residential structure designed to include one dwelling.

Special Deposit Account – An
account that is established for rehabilitation mortgages
to hold the funds needed for the rehabilitation work so
they can be disbursed from time to time as particular
portions of the work are completed.

Stand Alone – A Home Equity
loan originated without obtaining a Countrywide first
mortgage at the same time.

Start Date – The date you
want to use as the start date for the amortization,
usually the date you closed on your loan or today’s date.

Start Month – The date you
will begin adding an extra dollar amount to your regular
monthly payments. Enter the payment number from 1 to 360
(e.g., if you will start paying extra principal at the
start of year 5 of a 30 year loan, enter “49”.

Start Rate – See initial
interest rate.

Subdivision – A housing
development that is created by dividing a tract of land
into individual lots for sale or lease.

Sub-Escrow – Are fees
charged by the escrow company for allowing the borrower
to be able to sign all the loan documents in the Escrow
office instead of having to go to the lenders office.

Subordinate Financing – Any
mortgage or other lien that has a priority that is lower
than that of the first mortgage. The subordinate loan has
a claim to payment in a foreclosure only after the first
mortgage is paid.

Subprime – Subprime Lending
is also called B&C lending. It refers to a category
of loan programs that offer more lenient underwriting
provisions and expanded credit guidelines. These
provisions allow more flexibility in approving loans for
borrowers who have less-than-perfect credit. Subprime
loans are available at various interest rates and terms.
They also offer capabilities for debt consolidation
allowing borrowers to get a mortgage with enough extra
cash to consolidate loans.

Subsidized Second Mortgage – An
alternative financing option known as the Community
Seconds� mortgage for low- and moderate-income
households. An investor purchases a first mortgage that
has a subsidized second mortgage behind it. The second
mortgage may be issued by a state, county, or local
housing agency, foundation, or nonprofit corporation.
Payment on the second mortgage is often deferred and
carries a very low interest rate (or no interest rate).
Part or all of the second mortgage debt may be forgiven
depending on how long the buyer remains in the home.

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 in
the form of labor or services performed personally by the
owner.

T

Tax Bracket – Please select
the tax bracket you fall under. If you are unsure what
tax bracket you are in, you may want to speak with an
accountant find out.

Tax Savings – This is the
amount of money you save in income taxes. You save this
money because in most cases the interest you pay on your
home loan is tax deductible!

Tax Service – A fee
collected to set up a third-party to monitor the
borrower’s property tax payments to ensure that the
payments are made on time, and to prevent tax liens from
occurring.

Tenancy By The Entirety – A
type of joint tenancy of property that provides right of
survivorship and is available only to a husband and wife.
One spouse dies the property goes to the other spouse.
Contrast with tenancy in common and joint tenancy.

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.

Term – The term of a home
loan is the number of years the home loan is amortized
for. Home loans are generally amortized over 15, 20 or 30
years.

Termite Report – A report
that results from an inspection by a professional to
determine if the property has termites.

Third Party Fees – Fees
collected by lender for services provided by other
companies, such as an appraiser.

Third Party Origination – A
process by which a lender uses another party to
completely or partially originate, process, underwrite,
close, fund, or package the home loan. 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 Insurance Endorsements
– This is an endorsement of insurance against losses that
may result from claims of previously unknown ownership in
insured 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. Used to help qualify a
potential borrower for a home loan.

Total Monthly Payment – See
Monthly PITI payment.

Transaction Fee – A fee
charged each time the borrower draws on the credit line.

Transfer of Ownership – Any
means by which the ownership of a 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.

Transfer Tax – State or
local tax payable when title to a property 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 credit, such as 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. See multi-unit housing.

Trustee – A fiduciary who
holds or controls property for the benefit of another.

U

Underwriting – The analysis
of risk, the determination of the appropriate loan
amount, and the setting of loan terms and conditions,
based on the borrower’s creditworthiness and the value of
the real property that will secure the loan.

Unsecured Loan – A loan that
is not backed by collateral.

V

VA Mortgage – A mortgage
that is guaranteed by the Department of Veterans Affairs
(VA). Also known as a government mortgage.

Variable Rate – An interest
rate that changes periodically in relation to an index.
Payments may increase or decrease per the terms of the
loan agreement or note.

Vested – Having the right to
use a portion of a fund such 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.

Veterans Affairs, Department of
(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.

W

Warehouse – A closing-cost
fee representing the lender’s cost of holding a
borrower’s loan temporarily prior to being sold on the
secondary mortgage market.

Y

Year Acquired – The date you
acquired your existing mortgage, used to determine your
remaining balance.

Year-End Statement – A
report sent to the borrower each year. The report shows
how much was paid in taxes and interest during the year,
as well as the remaining mortgage loan balance at the end
of the year.