Select a term based on the letter it begins with:
A - B - C - D - E - F - G - H - I - J - L - M - N - O - P - Q - R - S - T - U - V - W

LOAN GLOSSARY

Glossary of Mortgage Loan and Real Estate Terms

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 or the property is transferred.

Acceptance
An offeree's consent to enter into a contract and be bound by the terms of the offer.

Additional Principal Payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjusted Basis
The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjustable Rate Mortgage (ARM)
A mortgage or home equity loan that adjusts its interest rate periodically based on the fluctuation of a specified index. Rate changes are made at prescribed times and within prescribed limits (caps) as defined in the mortgage contract. Also called a variable-rate mortgage.

Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Interval
The time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index, on an adjustable rate mortgage.

Administrator
A person appointed by a probate court to administer the estate of a person who died.

Affidavit
A written statement made before an official, such as a notary public. As an example; an affidavit of occupancy states that you will use the property as a principal residence.

Affordability Analysis
A detailed analysis of your ability to afford the purchase of a home. An affordability analysis considers your income, liabilities, and available funds, the type of mortgage you plan to use, the area where you want to purchase a home, and the expected closing costs.

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, scenic views, etc. Human-made amenities include swimming pools, tennis courts, etc.

Amortization
The gradual repayment of a mortgage by installments (regular payments) that cover both principal and interest.

Amortization Schedule
A timetable for payment of a mortgage loan, showing the amount of each payment applied to interest and principal and the remaining balance after each payment is made.

Amortization Term
The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Annual Mortgagor Statement
A report sent to the mortgagor 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.

Annual Percentage Rate (A.P.R.)
The annual cost of a loan to a borrower and like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes items such as; interest, mortgage insurance, and loan origination fee (points). This rate is likely to be higher than the stated rate on the mortgage because it takes into account these additional costs. The APR allows you to compare different mortgages based on actual annual costs.

Annuity
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

Appraisal
An informed estimate of the market value of a property, made by a qualified "appraiser".  The maximum amount of the mortgage is usually based on the appraisal. Contrast with "Home Inspection."

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

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

Appreciation
An increase in value due to changes in market conditions or other causes, the opposite of "Depreciation."

Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment
The process of placing a value on a property for the strict purpose of taxation. May also refer to a levy against a property for a special purpose, such as a sewer assessment.

Assessment Rolls
The public record of taxable property.

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).

Assignment
The transfer of a mortgage from one person to another.

Assumable Mortgage
A mortgage that can be taken over (assumed) by the buyer when a home is sold.

Assumption
The transfer of the seller's existing mortgage to the buyer. *See also Assumable Mortgage 

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

Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Attorney-in-fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

B

Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage
Usually a short-term fixed-rate loan which the borrower's monthly payments are amortized over a longer term than the actual term of the loan. The remaining outstanding balance amount of the principal must be paid off the with a lump sum payment or refinance at the maturity date specified in the contract.

Balloon Payment
The final lump sum payment that is made at of a balloon mortgage.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a court-appointed trustee.

Before-Tax Income
Income before taxes are deducted.

Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.

Bequeath
To transfer personal property through a will.

Betterment
An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

Bill of Sale
A written document that transfers title to personal property.

Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly Mortgages
Structured just like a traditional fixed-rate, level-payment, fully amortizing mortgage; however, you make your payments to reduce the debt every two weeks instead of the standard monthly payment schedule. The monthly payment is split in half, resulting in the same total monthly mortgage, but the resulting 26 and sometimes 27 biweekly payments a year translate into 13 monthly payments, or one extra monthly payment per year.

Blanket Insurance Policy
A single policy that covers more than one piece of property (or more than one person).

Blanket Mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Bona fide
In good faith, without fraud.

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

Breach
A violation of any legal contractural obligation.

Bridge Loan
A short-term loan collateralized by the borrower's present home (which is usually for sale) that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them. *See also 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.

Budget Category
A category of income or expense data used in a budget. "Rent" is an example of an expense category. "Salary" is a typical income category.

Building Code
Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Buy-Down
When the lender and/or the home builder/property developer subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Buydown Account
An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

Buydown Mortgage
A mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

C

Call Option
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason

Cap
A provision of an ARM (adjustable-rate mortgage) limiting the interest rate or mortgage payment's increase. *See also Lifetime Payment Cap, and Periodic Payment Cap.

Capacity
The ability to repay mortgage debt. Lenders base their evaluation of capacity information, income expenses and other debt obligations.

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.

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

Cash Reserve
Sufficient cash remaining after closing to make the first two mortgage payments.

Cash-out Refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

CD-Indexed (Certificate of Deposit) ARM
An adjustable rate mortgage in which the initial interest rate and payments adjust every six months after an initial six-month period according to changes in the market interest rates on six-month negotiable CDs.

Certificate of Deposit (CD)
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specified interest rate within a specified time period.

Certificate of Deposit (CD) Index
An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. *See also CD-Indexed (Certificate of Deposit) ARM entry.  

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of Title
A statement provided by an attorney, abstract or title company stating that the title to real estate is legally held by the current owner.

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Change Orders
Ammendments to a construction contract after construction begins in order to make unplanned changes to the work.

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

Chattel
Another name for personal property.

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

Closing
A meeting at which the sale of a property is finalized (also called "settlement"); the buyer signs the mortgage, and closing costs are paid.

Closing Agent
A person who coordinates the various closing activities including but not limited to; preparing and recording the closing documents and disbursing funds.

Closing Cost Item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product.

Closing Costs (Settlement Costs)
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Costs of closing usually add up to 3 to 6 percent of the mortgage amount.

Closing Date
The date on which a loan transaction is completed.

Closing Statement
*See HUD-1 Statement, also see Settlement Sheet.

Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

Co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. *See also Endorser.

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 that states the amount of coverage that must be maintained -- as a percentage of the total value of the property -- for the insured to collect the full amount of a loss.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Combined loan-to-value ratio (CLTV)
The ratio between the unpaid principal amount of your first mortgage, plus your home equity loan - or your credit limit in the case of a line of credit - and the appraised value of your home. Expressed as a percentage.

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.

Commitment
A formal offer by a lender to make a loan on specific terms to a borrower. *See also Loan Committment.

Common Area Assessments
Levies against 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.

Common Law
An unwritten body of law based on general custom in England and used to an extent in the United States.

Community Property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Comparables
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 original principal balance and on the accrued and unpaid interest.

Condemnation
The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.

Condition of the Home
Potential homeowners should know of major problems in a home before they make an offer. As a potential buyer, you should carefully examine all elements of the home. Ask questions to the seller and the real estate sales professional about any concerns you may have. Both the seller and the real estate agent can be held liable if they do not disclose any defects they know about in the home.

Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium Hotel
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.

Construction Contract
The terms and conditions of any major renovation job as stated in a formal, legally binding contract between you and your contractor.  

Construction Loan
A short term interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Contingency
A condition that must be met before a contract is legally binding. For example, the offer is dependent on the proper functioning of electrical, heating, cooling, plumbing, and mechanical systems.

Contingency for Clear Title
A contingency in a purchase contract that the purchase is subject to your receiving clear title to the property. This process includes a title search and title insurance.

Contingency for Financing
A contingency in a purchase contract specifies that if you do not get the mortgage financing you need to purchase the house at the terms you want, the offer is void and you will be refunded your deposit. Generally, the seller includes a clause in the contract that states you must make a "good-faith effort" to get the mortgage.

Contingency for Personal Property
A contingency in the purchase contract specifies what appliances, fixtures, and other personal property must remain in the home.

Contingency Reserve
An amount of funds held in a reserve account to cover the cost of any unforeseen repairs or deficiencies that are found during renovation. Most mortgages for purchase-renovation require an additional 10 percent of the total cost of the project to be put aside into a reserve account.

Contract
An oral or written agreement to do or not to do a certain thing.

Contractor
A person who oversees a construction project and handles aspects such as scheduling workers and ordering supplies.

Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal government. Contrast with "government mortgage."

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

Convertibility Clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

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

Cooperative Corporation
A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Cooperative Mortgages
Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

Cooperative Project
A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

Cost of Funds Index (COFI)
An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

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

Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit Bureau
Or Credit Reporting Agency, is an organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources. The three main credit reporting agencies are Equifax, Experian, and Trans Union.

Credit History
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Credit Report
A report of an individual's credit history, including open and fully repaid debt. The credit report is prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Score
A numerical value that ranks a borrower's credit risk at a given point in time. Your credit score is based on all the information in your credit report. This information is converted into a number -- a credit score -- that the lender uses to determine whether you are likely to repay your loan in a timely manner.

Credit Union
A financial institution that is owned and run by its members. It is a nonprofit, cooperative institution that offers members a place to save and borrow. A credit union often works by having its members pool their funds so additional loans can be made to other members.

Creditor
A person to whom money is owed.

D

Debt
An amount owed to another.

Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Deed
The legal document conveying title to a property.

Deed-in-lieu
The transfer of title from a delinquent borrower to a lender to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance." 

Deed of Trust
A legal document that conveys title to real estate to a neutral third party (a "trustee") who holds the title until the borrower has repaid the debt. In some states, this document is used instead of a mortgage.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Delinquency
Failure to make payments on time or to comply with other requirements of a mortgage.

Department of Veterans Affairs (VA)
An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

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 also Earnest Money Deposit

Deposit Cash
Paid to the seller when a formal sales contract is signed.

Depreciation
A decline in the value of a property; the opposite of "appreciation."

Detached Single-Family Home
The most traditional type of single-family home. It stands separate from any other housing structure and serves as a place of residence for the occupants.

Discount Point
A fee paid by the borrower at closing to reduce the interest rate on a mortgage. A point equals 1 percent of the loan amount. 

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

Due-on-sale Clause
A provision in a mortgage that allows the lender to demand full payment of the outstanding mortgage loan balance if the borrower sells the property securing mortgage. 

Due-on-transfer Provision
This terminology is usually used for second mortgages.
*See also Due-on-sale Clause. 

E

Earnest Money
Given by buyer to seller as part of the purchase price to bind the transaction.

Earnest Money Deposit
A "good-faith" deposit submitted with a purchase offer to show that the potential home buyer is serious about buying the house.

Easement
A right of way giving persons other than the owner 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.

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

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

Encroachment
An improvement that intrudes illegally on another's property. 

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

Endorser
A person who signs ownership interest over to another party.

Equal Credit Opportunity Act (ECOA)
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 an owner has in real estate, equity is the difference between the fair market value of the property and the amount still owed on its mortgage. over and above the loans against the property.

Equity Loan
A loan based on the borrower's equity in his or her home.

Escrow
Refers to a neutral third party who carries out the instruction of both the buyer and seller, they are given authority to deposit, disburse and distribute to the proper parties all the money and documents involved in a real estate of settlement or closing. Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.

Escrow Account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses. A borrower typically provides funds that will pay taxes, mortgage insurance, lease payments, hazard insurance premiums, and other payments when they are due.

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 servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance.

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

Escrow Payment
The portion of a monthly mortgage payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction
The lawful expulsion of an occupant from real property.

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.

Executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.

F

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and specifies procedures for challenging errors on a credit record.
Congress passed this act to give consumers certain rights when dealing with consumer reporting agencies, or CRAs. CRAs are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit or loans.

Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
The likely selling price of a home between a willing buyer and a willing seller on the open market. In a mortgage or a home equity loan, the fair market value is usually determined by an appraisal.

Fannie Mae
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. Since 1968, Fannie Mae has provided nearly $4.5 trillion of mortgage financing for over 49 million families.

Fannie Mae® Mortgage
A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with a term between 15 and 30 years. The mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home-buyer education session to qualify for a Fannie 97 mortgage.

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 underwriting but does not lend money or plan or construct housing.

Fee Simple
Fee simple ownership provides the owner with unrestricted powers to dispose of the owned property as the owner sees fit. Of all types of ownership a person can have in real estate, fee simple provides the greatest amount of personal control.

Fee Simple Estate
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 Mortgage
A mortgage (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 mortgagor's default.

FHA Loans
With FHA insurance, you can purchase a home with a low down payment from 3 percent to 5 percent of the FHA appraised value or the purchase price, whichever is lower. FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a given region. In general, the loan limit is less than what is available with a conventional mortgage through a lender.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage. With FHA insurance, you can purchase a home with a low down payment from 3 percent to 5 percent of the FHA appraised value or the purchase price, whichever is lower. FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a given region. In general, the loan limit is less than what is available with a mortgage through a lender.

Final Walk-Through Inspection
A clause in your sales contract that allows you to examine the property you want to purchase within the 24 hours before closing. This walk-through, during which you will be accompanied by the real estate sales professional, is your chance to ensure that the seller has vacated the house and left behind whatever property was agreed upon. Make sure that all conditions of the sales contract have been met. If they aren't, or you observe major problems, you have the right to delay the closing until the problems are corrected. One other option is to make sure money to correct the problems is placed in an escrow account at closing to cover the cost of repairs

Financial Index
An index is a number to which the interest rate on an adjustable rate mortgage (ARM) is tied. It is generally a published number expressed as a percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on ARMs. This interest rate is subject to any caps associated with the mortgage.

The interest rate changes on an ARM are tied to some type of financial index. Some of the most common type of indexed ARMs are:

• Treasury-Indexed ARMs
• CD-Indexed ARMs (Certificate of Deposit)
• Cost of Funds-Indexed ARMs (COFI)
• LIBOR-Based ARMs

Finder's Fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

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

First and Second Mortgages
A "first mortgage" is the primary lien against a property. The term is usually coined "first mortgage" only when a "second mortgage" is obtained on a property. A "second mortgage" is a lien that is subordinate to the first mortgage. Usually, the interest rates on second mortgages are slightly higher than the interest rates on a first mortgage. The amount of a second mortgage you can take out will depend on the equity you have built up in your home, the appraised value of your property, your credit history, and any other liens you may have against your property, such as a home equity line of credit.

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

Fixed-Period Adjustable-Rate Mortgages
This type of adjustable-rate mortgage (ARM) maintains the same initial interest rate for the first three, five, seven, or 10 years of your loan, depending on the term you choose. Your interest rate then adjusts annually, and can move up or down as market conditions change.

Fixed-Rated Mortgage
A mortgage on which the interest rate does not change during the entire term of the loan.

Fixture
Personal property that becomes real property when attached in a permanent manner to real estate.

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

Foreclosure
Legal process by which the lender or the seller forces a sale of a mortgaged property at public auction because the borrower has not met the terms of the mortgage. The proceeds of the sale are then applied to the mortgage debt.

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

Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

G

General Contractor
A person who oversees the construction project and handles various aspects such as scheduling workers and ordering supplies. If you are borrowing mortgage funds to renovate a home, your lender may need to review whether your contractor meets all federal, state, and local registration, licensing and certification standards.

Good Faith Estimate
The good-faith estimate is a report from your lender that outlines the costs you will incur to get your mortgage. It is based on the lender's typical loan origination costs for the area where your home is located. The estimate usually changes between application and closing. The settlement form will list the actual amount of money you'll need to bring to closing to pay your closing costs, in the form of a certified or cashier's check. 

Government Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with "conventional mortage". 

Government National Mortgage Association
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 program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off.

Grantee
The person to whom an interest in real property is conveyed.

Grantor
The person conveying an interest in real property.

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.

Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

Guaranteed Loan
Also known as a government mortgage.

Guarantee Mortgage
A mortgage that is guaranteed by a third party.

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

H

Hazard Insurance
A form of insurance which compensates for physical damage to a property from specified losses, such as fire, wind, vandalism, or other hazards.

Home Equity Conversion Mortgage (HECM)
A special type of mortgage that enables older home owners (aged 62 or over with little or no remaining balance on their mortgage) to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage. Developed by the Federal Housing Administration (FHA), the HECM mortgage provides a cash growth feature not found with some other reverse mortgages.

Home Equity Line of Credit
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

Home Inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. This is not an evaluation of the market value of the home or a determination of whether the home complies with applicable building and safety codes. The inspection does not include a recommendation on whether you should or should not buy the house. Contrast with appraisal.

Homeowner's Insurance
Homeowner's insurance -- also called "hazard insurance" -- should be equal to at least the replacement cost of the property you want to purchase. Replacement cost coverage ensures that your home will be fully rebuilt in case of a total loss. Most home buyers purchase a homeowner's insurance policy that includes personal liability insurance in case someone is injured on their property; personal property coverage for loss and damage to personal property due to theft or other events; and dwelling coverage to protect the house against fire, theft, weather damage, and other hazards.

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. 

Homeowner's Warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income.

HUD
An acronym for the U.S. Department of Housing and Urban Development. HUD is a governmental agency responsible for the implementation and administration of housing and urban development programs.

HUD-1 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."

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).

I

Impound
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

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). A published number or percentage interest rate (such as the average interest rate or yield on Treasury bills) against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments, which is then used to adjust the interest rate. Different lenders use different index rates (cost of funds index, prime rate and so forth).

In-File Credit Report
An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

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 Interest Rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."

Installment
The regular periodic payment that a borrower agrees to make to a lender. The installment is more often referred to as your monthly mortgage payment.

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 (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

Interest
The fee charged by the lender for borrowing money.

Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

Interest Rate
The rate of interest in effect for the monthly payment due.

Interest Rate Buydown Plan
An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual interest rate.

Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Interim Financing
A construction loam made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Investment Property
A property that is not occupied by the owner.

IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

J

Joint Tenancy
A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Judgment
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.

Judicial Foreclosure
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo Loan
A loan which is larger than $322,700 (amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac). Also known as a non-conforming loan.

L

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

Lease
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

Leasehold Estate
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Lease-purchase Mortgage Loan
Lease-purchase Option
An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate. Nonprofit organizations may use the lease-purchase option to purchase a home that they then rent to a consumer, or "leaseholder." The leaseholder has the option to buy the home after a designated period of time (usually three or five years). Part of each rent payment is put aside toward savings for the purpose of accumulating the down payment and closing costs.

Legal Description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

Liabilities
A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Liability Insurance
Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.

LIBOR-based ARMs
The London Interbank Offered Rate (LIBOR) is based on the interest rate that major international banks are willing to lend and borrow funds for a specified period of time in the London interbank market. The LIBOR is similar to the prime-lending rate posted by major U.S. banks.

Lien
A legal claim against a property that must be paid off when the property is sold.

Lifetime Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. *See also "cap" entry. 

Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit.

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

Loan
A sum of borrowed money (principal) that is generally repaid with interest.

Loan Application
The loan application is a detailed form designed to provide information from you that your lender will need. Lenders use the application to evaluate whether or not they can give you a loan, and if so, the amount of money they can lend you. The "four Cs" of credit come into play when filling out an application -- they are capacity, credit history, capital and collateral.

Loan Commitment
The commitment letter states the dollar amount of the loan being offered, the number of years you have to repay the loan, the loan origination fee, the points, the annual percentage rate, and the monthly charges. The letter also states the time you have to accept the loan offer and to close the loan.

Loan Origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.

Loan Origination Fee
The loan origination fee covers the administrative costs of processing the loan. It is often expressed in points. One point is 1 percent of the mortgage amount. (For example, a $100,000 mortgage with a loan origination fee of 1 point would mean you pay $1,000).

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property, expressed as a percentage.

Loan-To-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.

Lock-in
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Lock-in Period
The time period during which the lender has guaranteed an interest rate to a borrower. *See also Lock-in entry

M

Manufactured Housing
Homes and dwellings that are not built at the home site and are moved to the location are considered manufactured housing. Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation. All manufactured homes must be built to meet standards set forth by the U.S. Department of Housing and Urban Development (HUD). The standards focus on such aspects as design, strength, energy efficiency, and fire resistance. 

Margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate of an ARM, on each adjustment date, subject to any limitations on the interest rate change.

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.

Maximum Financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

Merged Credit Report
A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

Modification
The act of changing any of the terms of the mortgage.

Money Market Account
A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Money Market Fund
A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.

Mortgage
A legal document that pledges a property to the lender as security for payment. The mortgage is the legal document that gives the lender a legal claim against your house should you default on your loan payments. The mortgage indicates that a specific amount of money will be loaned at a specific interest rate so that you can buy your home. Another way of thinking of the mortgage is that you have possession of the property but the lender has ownership until you have repaid your loan.

Mortgage Banker (Banking Companies)
A company that originates mortgages exclusively for resale in the secondary mortgage market. Mortgage companies originate and service mortgages. In other words, they make loans to consumers. Mortgage companies then typically sell these loans to other lenders and investors. Some mortgage companies may be subsidiaries of depository institutions or their holding companies but do not receive money from individual depositors.

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. The National Association of Mortgage Brokers defines a mortgage broker as "an independent real estate financing professional who specializes in the origination of residential and/or commercial mortgages."

Mortgagee
The lender.

Mortgage Insurance (Private Mortgage Insurance - PMI)
A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan.

Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor 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 often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage-Related Closing Costs
Mortgage-related closing costs generally are costs associated with your loan application. They vary, but here are some of the most common ones:

• Loan origination fee: This fee covers the administrative costs of processing the loan. It may be expressed as a percentage of the loan (for example, 1 percent of the mortgage amount).
• Loan discount points: These points are additional funds you pay the lender at closing to get a lower interest rate on your mortgage. Typically, each point you pay for a 30-year loan lowers your interest rate by .125 of a percentage point. If the current interest rate on a no-point, 30-year mortgage is 7.75 percent, paying one point would lower the interest rate to 7.625. Each point is one percent of the mortgage (for example, if your mortgage is $200,000, one point equals $2,000).
• Appraisal fee: This fee pays for the appraisal, which the lender uses to determine whether the value of the property secures the loan should you default. The home buyer usually pays this fee. It may appear on the settlement form as "POC," or "paid outside closing."
• Credit report fee: This covers the cost of the credit report, which the lender uses to determine your creditworthiness.
• Assumption fee: This fee is charged if you take over the payments on the seller's existing loan. It may range from hundreds of dollars to one percent of the loan amount.
• Prepaid interest: You are charged interest when you borrow money from a lender, and you will pay interest on the mortgage amount from the date of settlement to the beginning of the period covered by the first monthly mortgage payment. At closing, you may be required to pay in advance the interest for the period.

Escrow accounts: Also called reserves, these accounts are required if your lender will be paying your homeowner's insurance and property taxes. Your lender sets up the escrow account by adding the cost of the insurance and taxes to your monthly mortgage payments. It is kept in reserve until the bills are due. The bills are sent directly to your lender, who makes the payments for you. 

Mortgagor
The borrower / homeowner.

Multidwelling Units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multifamily Mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex. 

N

Negative Amortization
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

Net Cash Flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments. 

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

No Cash-Out Refinance
A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

Nonliquid Asset
An asset that cannot easily be converted into cash.

Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time. Often called the promissory note, it represents your promise to pay the lender according to the agreed upon terms of the loan, including when and where to send your payment. The note lists any penalties that will be assessed if you don't make your monthly mortgage payments. It also warns you that the lender can "call" the loan -- demand repayment of the entire loan before the end of the term -- if you violate the terms of your mortgage.

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

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

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

Occupancy Date
As part of your formal purchase offer, a provision that will help ensure that your home will be ready for occupancy after the closing takes place, such as, holding the seller responsible for paying you rent should they not move out on or prior to the agreed-upon date.

Offer
A formal bid to buy a home, which includes such aspects as the address of the home, the sales price, the type of mortgage financing you will use to purchase the home, any personal property that might be included as part of the sale, and a target date for closing and occupancy. An earnest money deposit typically accompanies the offer. Once you have made an offer, the seller has the opportunity to accept, decline, or make a counter-offer. If your offer is accepted, you have a ratified sales contract. This contract is the starting point for working with an approved lender to get the mortgage that's right for you.

Ongoing Costs
Home buyers should not forget that there are on-going costs associated with owning a home. They include, but are not limited to:

• Monthly mortgage payment;
• Mortgage insurance;
• Homeowner's insurance;
• Property taxes; and,
• Utilities, such as gas, oil, water and electricity.
• Costs to maintain a home, including everything from cleaning and minor repairs to yard work and painting.
• Condominium owners and people living in planned unit developments should factor in any homeowners' association fees or similar costs.

One-Year Adjustable-Rate Mortgage
This adjustable-rate mortgage (ARM) offers a low initial interest rate with an interest rate that adjusts annually after the first year. The rate cap per annual adjustment is usually 2 percent; the lifetime adjustment caps can be 5 percent or 6 percent. This type of mortgage may be right for you if you anticipate a rapid increase in income over the first few years of your mortgage. 

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. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount. The loan origination fee covers the administrative costs of processing the loan.

Other Buyer Costs
There are other costs associated with the closing that are typically paid by the buyer. They often include:

• Fees paid to the lender: Loan discount points, loan origination fee, credit report fee, appraisal fee, and assumption fee.
• Advance payments or prepaid fees: Interest, mortgage insurance premium, and hazard insurance premium.
• Escrow accounts or reserves: State and local law and lenders' policies vary but these reserves may have to be set up if the lender will be paying property taxes, mortgage insurance, and hazard insurance.
• Title charges: Closing (or settlement) fee, title insurance premium, title search, document preparation fees, and attorney fees. The fees the buyer pays for a real estate attorney are not part of settlement procedures.
• Recording and transfer fees: States often impose a tax on the transfer of property. The payment of a fee for recording the purchasing documents may be required.
• Additional charges: Surveyor's fees, termite and other pet infestation inspection fees, and the cost of other inspections required by the lender.
• Adjustments: Items paid by the seller in advance and items yet to be paid for which the seller is responsible. The most common expense is property taxes, but others may have to be addressed. 

Other Contingencies
A contingency in a contract states that if a certain requirement is not met, the deal can be canceled. Some of the most common contingencies related to home purchases include:

• Professional home inspection: This states that your sales contract is contingent on a satisfactory report by a professional home inspector. You have the right not to proceed with the purchase of the home, or to re-negotiate the terms of purchase, if any major problems are uncovered.
• Termite inspection: This states that the property is free of both visible termite infestation and termite damage.
• Asbestos: An inspection by a qualified professional to take samples for asbestos, and offer solutions to correct any problems.
• Formaldehyde: This colorless, gas chemical was used in foam insulation for homes until the early 1980s and is emitted by some construction materials. A qualified inspector can let you know if the gas is present in the home you wish to purchase.
• Radon: Most home buyers require that the house be tested for radon, a naturally occurring, odorless gas that can cause health problems.
• Hazardous waste sites: The Environmental Protection Agency has identified contaminated hazardous waste sites across the country.
• Lead-based paint: If the house was built before 1950, you can be fairly certain lead-based paint was used. For houses built between 1950 and 1978, there is also a chance lead-based paint was used. Lead disclosure regulations can vary from state to state. Health officials in the state where the home you want to buy is located may be able to provide further guidance.

Other Financial Companies
Other financial companies include credit unions, mortgage brokers, insurance companies, investment bankers, and housing finance agencies.

• Credit unions are cooperative, not-for-profit institutions organized to promote savings and to provide credit, including mortgage loans, to their members. Credit unions either service the mortgages they originate or sell them to other investors.
• Mortgage brokers are independent real estate financing professionals who specialize in the origination of residential and/or commercial mortgages. Mortgage brokers originate loans on behalf of other lenders -- including banks, thrifts and mortgage banking companies, but do not service loans. 
• Insurance companies and investment bankers are large institutional investors in mortgages that do not receive deposits from consumers. They use premiums from their clients' insurance polices and investment packages to fund their mortgage lending activities.
• Housing finance agencies are typically associated with state or local governments. They are generally geared toward assisting first-time and low- to moderate-income borrowers. They use tax exempt bonds to fund mortgage lending and as a result are often able to provide interest rates that are below current market rates.

Owner Financing
A property purchase transaction in which the property 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. 

Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date. 

Permits
Permits provide legal permission to undertake a home improvement project and are usually given by local governments agencies. Some of the most common permits are for general projects or permits that require you to meet specific local building codes. You may want to check with your local government to determine if there are building restrictions in historic areas or in environmentally-sensitive areas.

Periodic Payment Cap (Rate Cap)
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

Personal Property
Any property that is not real property.

PITI
Principal, Interest, Taxes and Insurance are the four components of a monthly mortgage payment. Also called monthly housing expense.

• 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 are paid into an escrow account each month for property taxes and hazard 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 (PUD)
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.

Points (loan discount points)
A one-time charge by the lender for originating a loan assessed at closing by the lender. Each point is equal to 1 percent of the loan amount.

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

Pre-Approval
An indication from a lender of how much money you will be eligible to borrow when you apply for a mortgage. This process occurs before you complete an application for a loan. Pre-approval includes a screening of a borrower's credit history, and all information you give to your lender will be verified when you apply for your mortgage.

Prearranged Refinancing Agreement
A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

Pre-Payment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Pre-Payment Penalty
Money charged for an early repayment of debt.

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

Prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-Qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal
The amount of debt, not counting interest, left on a loan. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. *Also see Remaining Balance.

Private Mortgage Insurance (PMI)
Also known as Mortgage Insurance, PMI 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 percent.

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

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

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. It includes:

• description of property,
• price offered,
• down payment,
• earnest money deposit,
• financing,
• personal items to be included,
• closing date,
• occupancy date,
• length of time the offer is valid,
• special contingencies, and
• inspection.

Purchase Money Transaction
The acquisition of property through the payment of money or its equivalent.

Q

Qualifying Ratios
Guidelines applied by lenders to determine how large a loan to grant the home buyer. The debt-to-income ratio is your current monthly debt on loans and credit cards divided by your gross income. The housing-to-income ratio is your new housing payments divided by your gross income. 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 (mortgage costs should not exceed 28 percent of your gross monthly (pre-tax) income) and total debt obligations (should not exceed 36 percent of your gross monthly income) as a percent of income ratio. Lenders follow these guidelines because they believe these percentages allow homeowners to pay off their mortgages fairly comfortably without the worry of loan defaults and foreclosures.

Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

R

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

Rate Caps
Lenders offer caps with their adjustable rate mortgages (ARMs) so you can have more control over your monthly mortgage payment. Usually, there are two types of rate caps:

• A per-adjustment cap, which specifies the most your interest rate can rise from one adjustment period to the next,
• and a lifetime adjustment cap, which specifies how much your interest rate can rise over the life of your loan.

Rate-Improvement Mortgage
A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.

Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time. *See also Lock-in.

Ratified Sales Contract
Both the buyer and the seller have signed off on the final offer. It also acts as a starting point for the loan application interview. The ratified sales contract specifies the amount of your down payment, the price you will pay for the house, the type of mortgage financing you will seek, your proposed closing and occupancy dates, and other contingencies.

Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Attorney
Many homeowners hire a real estate attorney to represent them during the loan application process. If you do so, your attorney will review the sales contract and represent you at closing. 

Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs. 

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

Recission
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

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 the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refinancing
The process of paying off one loan with the proceeds from a new loan secured by the same property. This is most often done to get the better interest rates offered by the new loan.

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

Rehabilitation Escrow Account
A contingency reserve will be set up that contains funds borrowed to finance your home improvements. These will be placed into an escrow account upon the closing of your mortgage. Payments to the contractor will be periodically made from this fund as construction occurs. You will be paid interest on the funds that are in the escrow account that have not been paid to the contractor.

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. *Also see Principal Balance entry.

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

Rent Loss Insurance
Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

Rent with Option to Buy
There are two different Rent With Option to Buy options:

• Lease-Purchase Mortgage Loan: An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.
• Lease-Purchase Option: Nonprofit organizations may use the lease-purchase option to purchase a home that they then rent to a consumer, or "leaseholder." The leaseholder has the option to buy the home after a designated period of time (usually three or five years). Part of each rent payment is put aside toward savings for the purpose of accumulating the down payment and closing costs.

Repayment Plan
An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions."

Replacement Reserve Fund
A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.

Revolving Liability
A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

RHS Loans
The Rural Housing Service (RHS), a branch of the U.S. Department of Agriculture, offers low-interest-rate homeownership loans with no down payment requirements to low- and moderate-income persons who live in rural areas or small towns.

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, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. 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-Leaseback
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.

Savings and Loans
Among the customers of Savings and Loans (S&Ls) are individual savers and residential and commercial property mortgage borrowers. Their traditional role for savings and loans is to accept deposits and make mortgage loans, but it has expanded recently to a focus on one- to four-family residential mortgages, multifamily mortgages and commercial mortgages. Deposit insurance is provided through the Savings Association Insurance Fund, a subsidiary of the Federal Deposit Insurance Corporation.

Secondary Mortgage Market
The buying and selling of existing mortgages.

Second Mortgage
A mortgage made subsequent to another and subordinate to the first mortgage.

Secured Loan
A loan that is backed by collateral. 

Security
The property that will be pledged as collateral for a loan.

Seller Take-Back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. *Also see Owner Financing.

Seller Versus Buyer Closing Costs
Buyers and sellers often negotiate who will pay certain closing costs, the agreement that you and the seller reach must be specified in the sales contract. Your negotiations could depend on a variety of factors, including the quality of the home, how long the home has been on the market, whether there are any other interested buyers, and how motivated the seller is to sell the home.

Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

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

Settlement
The final step before you get the keys to your home is a formal meeting called the closing, at which time the ownership of the home is transferred from the seller to the buyer. Typically attended by the buyer(s), the seller(s), their attorneys if they have them, both real estate sales professionals, a representative of the lender, and the closing agent. The purpose is to make sure the property is physically and legally ready to be transferred to you. Several closing costs will be paid at this meeting. These expenses are over and above the price of the property and are incurred when ownership of a property is transferred. Closing costs generally include a loan origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance, and a survey. Closing costs vary according to the area of the country.

Settlement Sheet
The HUD-1 Settlement Statement itemizes the amounts to be paid by the buyer and the seller at closing. The (blank) form is published by the U.S. Department of Housing and Urban Development (HUD). Items on the statement include:

• real estate commissions,
• loan fees,
• points, and
• escrow amounts.

The form is filled out by your closing agent and must be signed by the buyer and the seller. The buyer should be allowed to review the HUD-1 Settlement Statement on the business day before the closing meeting to know the closing costs in advance. The HUD-1 Settlement Statement is also known as the "closing statement" or "settlement sheet."

Single-Family Properties
One- to four-unit properties including detached homes, townhomes, condominiums, and cooperatives.

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.

Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan. 

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

Subordinate Financing
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. This process confirms that the property's boundaries are correctly described in the purchase and sale agreement, also called a plot plan. The buyer usually pays to have the survey done, but some cost savings may be found by requesting an "update" from the company that previously surveyed the property.

Sweat Equity
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

T

Taxes and Insurance
"PITI" this abbreviation stands for principal, interest, taxes and insurance. The tax and insurance components of a mortgage payment are generally held by the lender in an escrow account. The lender pays any property tax and homeowner's insurance bills as they are due, ensuring they are paid on time. A home buyer's monthly mortgage payment generally covers expenses through the escrow account.

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. Contrast with tenancy in common.

Tenancy in Common
A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenacy.

Tenant-Stockholder
The obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement.

Termite Inspection
Homes in many parts of the country must be inspected for termites before they can be sold. You should receive a certificate from a termite inspection firm stating that the property is free of both visible termite infestation and termite damage. The cost of the termite inspection is usually paid by the seller, and the seller's real estate sales professional orders the inspection. You need to make sure that the original certificate is delivered to your lender at least three days before closing.

Third-Party Origination
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market. *See also Mortgage Broker.

Thrifts
Thrifts are depository institutions that primarily serve consumers and include both savings banks and savings and loan (S&L) institutions. These institutions originate and service mortgage loans. A thrift may choose to hold a loan in its own portfolio or sell the loan to an investor.

Title
A legal document that gives evidence of an individual's right to or ownership of 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. Your lender will require that you buy title insurance to ensure that you are receiving a "marketable title."

Title Search
An examination of municipal records to determine the legal ownership of property and that there are no liens, "encumbrances" or other claims outstanding. Encumbrances include any liens -- legal claims against a property filed by creditors as a means to collect unpaid bills. Liens can also be filed by the Internal Revenue Service for nonpayment of taxes. The search is usually performed by a title company.

Total Expense Ratio
Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.

Townhouse
A townhouse is similar to a condominium in that it's a type of joint real estate where each housing unit is individually owned. However, it has two or more stories, rather than the typical one floor found in a condominium. Townhouses are available in many shapes and sizes, and most may have yards or common spaces that can be used by the owners.

Trade Equity
Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased.

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. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.

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

Treasury Index
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
*See also Adjustable-Rate Mortgage (ARM).

Truth-In-Lending
A federal law that requires lenders to full disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges. Your lender must provide you with the Truth-in-Lending (TIL) Statement within three business days of your loan application. This document outlines the costs of your loan, and it is given to you so you can compare the costs with those of other lenders.

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

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

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.

U

Underwriting
The process of evaluating a loan application to determine whether to make a loan based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate, term & loan amount.

Unsecured Loan
A loan that is not backed by collateral.

V

(VA) U.S. Department of Veterans Affairs
The Veterans Administration is a federal government agency authorized to guarantee loans made to eligible veterans under certain conditions. The VA guarantee allows qualified veterans to buy a house costing up to $203,000 with no down payment. Moreover, the qualification guidelines for VA loans are more flexible than those for either the Federal Housing Administration (FHA) or conventional loans.

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

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.

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.

W

What-if Analysis
An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.

What-If Scenario
A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.

Wraparound Mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.

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