Glossary of Mortgage 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

ACCELERATION CLAUSE

A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed

ACQUIRED PROPERTY

A property owned as a result of a foreclosure, acceptance of a deed-in-lieu of foreclosure, or acquired as a result of a paid insurance claim: often referred to as Real Estate Owned (REO)

ADJUSTABLE-RATE MORTGAGE (ARM)

A mortgage that permits the lender to periodically adjust the interest rate when the index changes

ADJUSTMENT INTERVAL

The period of time between changes in the interest rate for an adjustable-rate mortgage; typical adjustment intervals are one year, three, and five years

AFFORDABLE MORTGAGE

A term used by many lenders to describe their “First-Time Homebuyers’ Programs” or mortgage products that have maximum income limits; many of these programs have more flexible underwriting guidelines and/or require smaller down payments

AGREEMENT FOR SALE

A document in which the purchaser agrees to buy certain real estate (or personal property) and the seller agrees to sell under stated terms and conditions; also called Sales Contract, Binder, or Earnest Money Contract

AMORTIZE

A period of time over which a calculated mortgage payment will fully repay a set loan amount at a specified interest rate

AMORTIZATION

The gradual repayment of a mortgage by installments

AMORTIZATION SCHEDULE

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance

ANNUAL PERCENTAGE RATE (APR)

A stated interest rate that reflects all the financing costs of a mortgage; the APR includes points, origination fees and other finance charges in addition to the interest on the mortgage, and includes them all in a yearly interest rate. As a result, the APR is usually higher than the interest rate alone. It also provides a benchmark for comparing different types of mortgages based on the annual cost for each loan

APPRAISAL

A professional estimate of a property’s market value

APPRAISER

The appraiser decides the market value of a home based on its condition and the selling prices of comparable homes recently sold in the area. His or her job is to compute a fair estimate of market value to help the lender decide a reasonable loan amount

APPRECIATION

An increase in the value of a house due to changes in market conditions or other causes

ASSESSED VALUE

The valuation placed upon property by a public tax assessor for purposes of taxation

ASSUMABLE MORTGAGE

A mortgage that a buyer can take over with the purchase of a property

Assumption

The transfer of the seller’s existing mortgage to the buyer

B

BALLOON (PAYMENT) MORTGAGE

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract

BINDER

An offer secured by an earnest money deposit

BIWEEKLY MORTGAGE

A type of fixed-rate mortgage with payments for half the usual monthly amount scheduled every two weeks. Because you make the equivalent of 13 months every year, the loan term is shortened from 30 years to 18 or 19 years, and total interest cost are substantially lower

BORROWER

A mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable

BROKER (REAL ESTATE)

One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between them; in most states a license is required

BUILDING CODE

The local regulations that control design, construction and materials used in construction; building codes are based on safety and health standards

BUDGET

An itemized summary of probable expenditures and income for a given period; a systematic plan for meeting expenses in a given period; the total sum of money allocated for a particular purpose or time period

BUYDOWN

A sum of money paid to a lender at closing to reduce the borrower’s out-of-pocket monthly mortgage payment; most buydowns are temporary.

C

CAP

A limit on an adjustable rate mortgage (ARM), which determines how much the interest rate can increase

CASH RESERVE

The equivalent of mortgage payments that a lender requires a borrower to have available after closing

CERTIFICATE OF OCCUPANCY

Written authorization given by a local municipality that allows a newly completed or substantially completed structure to be inhabited

CHAIN OF TITLE

The history of all the documents transferring title to a parcel of real property; starting with the earliest existing document and ending with the most recent

CHATTEL

Personal property

CLEAR TITLE

Title to a property without liens or questions of ownership

CLOSING

A meeting or settlement of the finalized sale on a property where documents are signed, and monies exchanged

CLOSING AGENT/ATTORNEY

A closing agent or attorney ensures that all documentation related to the sale of a house has been completed properly, including the title search and title insurance. The closing agent explains all closing documents to the buyer and the seller, obtains their signatures where necessary, and records the documents.

CLOSING COSTS

Expenses or settlement costs, above the sales price, incurred by both buyer and seller during the transfer of a property

CLOSING STATEMENT

A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance

COLLATERAL

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

COMMITMENT

A written agreement between a lender and a borrower to loan money subject to compliance with stated conditions

COMMITMENT LETTER

A letter sent by the lender to a borrower stating that the loan has been approved and describing the terms of the loan

COMMUNITY HOME BUYER’S PROGRAM

An alternative financing option that allows households of modest means to qualify for mortgages using nontraditional credit histories, 33 percent housing-to-income and 38 percent debt-to-income ratios, and the waiver of the usual two payment cash reserve at closing

COMMUNITY HOME IMPROVEMENT MORTGAGE LOAN

An alternative financing option that enables low-and moderate-income homebuyers to purchase housing that has been improved by a non-profit community land trust, and to lease the land on which the property stands

CONDOMINIUM

A form of ownership where a unit and interest in common areas is owned

CONDOMINIUM DECLARATION

The basic condominium document that must be registered by the developer before the first unit is sold; this declaration thoroughly describes the entire condominium entity, including each unit and all common areas

CONTINGENCY

Conditioned events that must happen in order for the buyer and seller to conclude a sales transaction

CONTRACT

An agreement between two or more parties for legal consideration

CONTRACT OF SALE

A contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and payments have been made

CONVENTIONAL MORTGAGE

Any mortgage that is not insured or guaranteed by the Federal Government

CONVERTIBLE MORTGAGE

An adjustable rate mortgage that can be converted to a fixed-rate mortgage under specified conditions

CONVEYANCE

The transfer of title on real property from one party to another

COORPERATIVE

A form of ownership where shares of stock for a unit is owned in a corporation rather than a unit itself

COVENANT

A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure

CREDIT DEROGATIVES

Negetive credit reflected on a credit report such as slow pays, open collection accounts, liens, judgements etc.

CREDIT RATING

A ratio given to a person to establish willingness to pay obligations based upon one’s past history of timely payment

CREDIT REPORT

An individual’s or organization’s credit history prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness

D

DEBT

A sum of money due by an expressed agreement

DEBT-TO-INCOME – RATIO

Percentage of total debt payments to gross income

DEED

The legal document conveying title to a property

DEED OF TRUST

A document used instead of a mortgage in some states

DEFAULT

Failure to make loan payments when they are due

DELINQUENCY

A loan in which a payment is overdue but not yet in default

DEPT. OF VETERANS AFFAIRS (VA LOAN)

A federal agency that guarantees no down payment loans to veteran who have served and active military who are serving in the U.S. military

DEPOSIT

A cash deposit made by a potential buyer to demonstrate that the offer to purchase is serious

DEPRECIATION

A decline in the value of property; the opposite of “appreciation”

DISCOUNT POINT

An amount equal to one percent of the principal amount of a mortgage loan; A one time charge assessed by the lender that must be paid in cash at closing

DOWN PAYMENT

The part of the purchase price that a buyer pays in cash and is not included in the mortgage

DUE-ON-SALE CLAUSE

A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage

E

EARNEST MONEY DEPOSIT

See “Deposit”

EASEMENT

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

EQUAL CREDIT OPPPORTUNITY ACT (ECOA)

Federal law that prohibits lenders from denying mortgages on the basis of race, color, religion, national origin, age, sex, marital status

EQUITY

A homeowner’s financial interest in a property; Equity is the difference between the fair market value of a property and the amount still owed on the mortgage

EQUITY LOAN

A loan based on the borrower’s equity in his or her home

ESCROW

Money deposited with a third party that is returned upon fulfillment of a condition or contract

ESCROW ACCOUNT

An account established with a third party (See “Escrow”)

F

FAIR CREDIT REPORTING ACT

A consumer protection law that regulates the disclosure of consumer credit reports

FAIR MARKET VALUE

The price at which property is transferred between a willing buyer and a willing seller, each of whom has reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell

FANNIE MAE

Federal National Mortgage Association

FHA (FEDERAL HOUSING ADMINISTRATION)

Acronym for the Federal Housing Administration, a division of the Department of Housing and Urban Development, that provides mortgage insurance and sets construction and underwriting standards; FHA does not lend money

FHA MORTGAGE

A mortgage insured by Federal Housing Administration (FHA)

FEDERAL HOME LOAN MORTGAGE CORPORATION

A private corporation created by Congress to support the secondary mortgage market; it sells participation certificates secured by pools of conventional mortgage loans, their principal and interest guaranteed by the federal government through the FHLMC, popularly known as FREDDIE MAC

FEDERAL NATIONAL MORTGAGE ASSOCIATION

A private corporation created by Congress to support the secondary mortgage market. FNMA sells mortgage securities backed by pools of conventional loans; payment of principal and interest of these securities is backed by the U.S. government, popularly known as FANNIE MAE

FIRST MORTGAGE

The mortgage that has first claim in the event of default

FIXED-RATE MORTGAGE

A mortgage in which the interest rate does not change

FLOOD INSURANCE

Insurance required on properties located in a designated flood area

FORBEARANCE

A lender’s agreement to postpone foreclosure in order to give a borrower time to catch up on overdue payments

FORECLOSURE

The legal procedure permitting a creditor to take possession of and sell property that is mortgaged as security for a defaulted loan

FOR SALE BY OWNER

Homeowners who sell their homes without the assistance of a real estate agent

FREDDIE MAC

Federal Home Loan Mortgage Corporation

G

GOAL

The objective toward which an endeavor is directed

GOOD FAITH ESTIMATE

An itemized breakdown of estimated closing or settlement costs

GRADUATED PAYMENT MORTGAGE

A mortgage that starts with low monthly payments, that increase at a predetermined rate

GROSS MONTHLY INCOME

The total amount a borrower earns each month before
income taxes or other expenses are deducted

H

HAZARD INSURANCE

A casualty policy covering real estate property
against “multiple perils”

HOMEOWNERS ASSOCIATION

An organization of homeowners residing within a
particular development whose major purpose is to
maintain and provide community facilities and services
for the common enjoyment of the residents

HOMEOWNER’S INSURANCE

An insurance policy that combines liability coverage and
hazard insurance

HOMEOWNER’S POLICY

A multiple peril insurance policy commonly called
“package policy” ; it is available to owners of private
dwellings and covers the dwelling and contents in the
case of fire or wind damage, theft, and liability for
property damage and personal liability

HOMEOWNER’S WARRANTY

Insurance that covers repairs to specific parts of a
house for a specific period of time

HOUSING EXPENSE RATIO

A homeowner’s monthly housing expense as a percentage
of his or her monthly income

HUD

Acronym for the U.S. Department of housing and Urban
Development which administers many housing programs

I

INDEX

A measurement used by lenders to determine any changes
to the interest rate charged on an adjustable rate
mortgage

INSPECTOR

The property/mechanical inspector examines a home to
evaluate its plumbing, electrical work, appliances,
heating and cooling systems, roof, and structural stability

INTEREST

The fee charged for borrowing money

INTEREST RATE

A percentage of an amount of money usually expressed
as an annual percentage which is paid for the use of the
money for a specified period of time

INTEREST RATE CAP

A provision of an ARM limiting how much interest rates may increase per adjustment period (see also Lifetime Cap)

J

JOINT TENANCY

A form of co-ownership giving each tenant equal interest
and equal rights in the property, including the right of
survivorship

L

LATE CHARGE

The penalty a borrower must pay when a payment is made
after the due date

LEASE/PURCHASE MORTGAGE LOAN

An alternative financing option that allows low-and
moderate-income homebuyers to lease a home from a non-
profit organization with an option to buy, and with each
month’s rent payment consisting of PITI payments on the
first mortgage, plus and extra amount that is earmarked for a
saving account in which money for a down payment
accumulates

LIEN

A legal claim to a property that must be paid when the
property is sold

LIFETIME CAP

A provision of an ARM that limits the total increase in
interest rates over the life of the loan

LOAN

The letting of money by a lender to a borrower to be repaid
with or without interest

LOAN COMMITMENT

See Commitment Letter

LOAN ORGINATION FEE

See “Origination Fee”

LOAN SERVICING

The collection of mortgage payments from borrowers and
related responsibilities of a loan servicer

LOAN-TO-VALUE RATIO (LTV)

The amount of a loan compared to the value of a property
expressed as a percentage

LOCK-IN RATE

A written agreement guaranteeing the homebuyer a specified
interest rate provided the loan is closed within a set period of
time; The lock-in also usually specified the number of points to
be paid at closing

LTV

See “Loan-to-Value”

M

MARGIN

The lender’s cost and profit for doing business which is
added to the index rate to determine the interest rate on
an adjustable rate mortgage for the upcoming period

MARKET VALUE

The highest price that a willing buyer would pay and the
lowest a willing seller would accept

MORTGAGE

A legal document which a borrower gibes to the lender
on property as security for payment of a debt

MORTGAGE BANKER

An entity active in the field of mortgage banking

MORTGAGE BROKER

A firm that processes loans for a number of lenders

MORTGAGE INSURANCE

Insurance that protects lenders against loss if a
borrower defaults

MORTGAGE INSURANCE PREMIUM (MIP)

The fee paid by a borrower to FHA or a private insurer
for mortgage insurance

MORTGAGE INVESTOR

Any person or institution that invests in mortgages; by
buying mortgage loans from lenders, the mortgage
investor gives the lender funds that can be used for more
lending

MORTGAGE LIFE INSURANCE

A type of term life insurance; the amount of coverage
decreases as the mortgage balance declines; in the
event that the borrower dies while the policy is in force,
the debt is automatically paid by insurance proceeds

MORTGAGE NOTE

A legal document obligating a borrower to repay a loan at a
stated interest rate during a specified period of time; the
agreement is secured by a mortgage

MORTGAGEE

The lender in a mortgage agreement

MORTGAGOR

The borrower in a mortgage agreement

N

NEGATIVE AMORTIZATION

Payment terms under which the borrower’s monthly payments
do not cover the interest due; as a result, the loan balance
increases

NOTE

A written promised by one party to pay a specified sum of money to a second party under the conditions agreed upon mutually; also called a “Promissory Note”

NOTE RATE

The interest rate on a mortgage loan

NOTICE OF DEFAULT

A formal written notice to a borrower that a default has occurred and that legal action may be taken

O

ORIGINATION FEE

A fee paid to the lender for processing the loan application, stated as a percentage of the mortgage amount

OWNER FINANCING

A purchase in which the seller provides all or part of the financing

P

PAYMENT CAP

A provision of some ARMs limiting how much a borrower’s payments may increase regardless of how much the interest rate increases; may result in negative amortization

PITI

An acronym for Principle, Interest, Taxes and Insurance, the components of a monthly mortgage payment

POINTS

A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage

PREPAYMENT PENALTY

A fee charged to a borrower who pays off a loan before it is due

PREQUALIFICATION

Determining the amount a buyer is eligible to borrow before a loan application is made

PRINCIPAL

The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduced the outstanding balance of a mortgage

PRIORITIZE

To arrange or deal with in order of importance

PRIVATE MORTGAGE INSURANCE (PMI)

Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults

PURCHASE AND SALE AGREEMENT

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

Q

QUALIFYING INCOME RATIOS

A comparison of a proposed monthly housing expense to gross monthly income; and a comparison of total monthly debt, including proposed housing expense, to gross monthly income

R

RADON

A radioactive gas found in some homes that in sufficient concentrations can cause health problems

RATE LOCK

See ”LOCK-IN”

REAL ESTATE AGENT

A licensed person who acts on behalf of an owner to sell a property; In some states, a licensed person who acts on behalf of the buyers, and is paid a commission by the seller

REAL ESTATE BROKER

The seller of the house pays the real estate broker to attract potential buyers and help negotiate the contract between the seller and the buyer; the broker identifies available properties for buyers and shows them homes that meet their criteria

REAL ESTATE SETTLEMENT PROCEDURE ACT (RESPA)

Required lenders to give borrowers advance notice of closing costs

REALTOR

A member of the National Association of Realtors

REFINANCING

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

RENT WITH OPTION TO BUY

See “lease/purchase mortgage loan”

RESPA

Real Estate Settlement Procedures Act; RESPA is a federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs

RURAL ECONOMIC AND COMMUNITY DEVELOPMENT (RECD)

Provides housing loans in rural communities, formerly known as Farmers Home Administration (FMHA)

S

SECOND MORTGAGE

A mortgage that has rights which are subordinate to the rights of the first mortgage holder

SECONDARY MORTGAGE MARKET

The buying and selling of existing mortgages

SELLER TAKE-BACK

An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage

SERVICER

After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments; lenders often release servicing to another business, which means that a homebuyer will not necessarily send house payments to the original lender

SETTLEMENT

The closing of a mortgage loan

SETTLEMENT SHEET

The computation of costs payable at closing which determines the seller’s net proceeds and the buyer’s net payment

SUBSIDIZED SECOND MORTGAGE

An alternative financing option for low-and moderate-income households that also includes a down payment and a first mortgage, with funds for the second mortgage provided by city, county, or state housing agencies, foundations or non-profit corporations; payment on the second mortgage is often deferred, carries no or low interest rates, and part of the debt may be forgiven for each year the family remains in the home

SURVEY

A drawing showing the legal boundaries of a property

T

TANENCY BY ENTIRETY

A type of joint ownership of property available only to a husband and wife

TENENCY IN COMMON

A type of joint ownership in a property without right of survivorship

THREE/TWO (3/2) OPTION

An alternative financing plan that enables households whose earnings are no more than 115 percent of the median income in their regional area to make a 3 percent down payment with their own funds, coupled with a 2 percent gift from a relative or a 2 percent grant or unsecured loan from a non-profit or state or local government program

TITLE

A legal document establishing the right of ownership

TITLE COMPANY

A company that specializes in insuring title to propert

TITLE INSURANCE

An insurance policy that insures you against errors in the title search, essentially guaranteeing you and your lender’s financial interest in the propert y

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

TRANSFER TAX

State or local tax payable when title passes from one owner to another

TRUTH-IN-LENDING

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges

U

UNDERWRITING

A risk analysis conducted by a lender to decide whether or not to approve a loan

UNSECURED NOTE

A loan that is not backed by collateral (property)

V

VA (DEPARTMENT OF VETERANS AFFAIRS) LOAN

Government insured loans guaranteed by the Department of Veterans Affairs, requiring very low or no down payments and with generous requirements for qualification; they are available only to veterans of the armed services, those currently on active duty or in the reserves, and their spouses

VERIFICATION OF DEPOSIT (VOD)

A form sent to each depository listed on the loan application to verify funds of the borrower

VERIFICATION OF EMPLOYMENT (VOE)

A form sent to the borrowers employer to verify the borrower’s employment and employment history

Y

YIELD

The effective rate of return on an investment based on fees, an interest rate, and the price paid for the mortgage

Z

ZONING

City or county laws specifying how property may be used in specific areas