GLOSSARY
A mortgage whose interest rate changes periodically based on the changes in a specified index.
adjustment date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
adjustment period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
amortization
The repayment of a mortgage loan by installments with regular payments to cover the and interest.
amortization schedule
A timetable of mortgage payments over the course of a loan that shows how much is applied to both the principal and interest.
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 percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points). This is the rate used to compare rates from lender to lender.
application
A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security.
appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.
appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.
appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
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.
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.
A calculation of your total living expenses, including housing costs, divided by your income.
balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
balloon mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.
balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
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 trustee.
basis point
A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.
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.
biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings in interest.
blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
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 obligation.
bridge loan
A form of second trust that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as “swing loan.”
broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
cash reserves
Money put aside in case of a financial emergency.
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.
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 abstract company, title company, or attorney stating that the current owner legally holds the title to real estate.
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.
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing
The eventual funding of a mortgage loan after the meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called “settlement.”
closing cost item
Closing costs are items charged by the lender, third parties and certain service providers. These fees can include origination fees, discount points, title fees and pre-paid items. Impounds such as taxes and homeowner’s insurance are in addition to closing costs.
closing statement
Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.
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.
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 (CLTV)
The relationship between the unpaid balances of all the mortgages on a property (first and second usually) and the property’s appraised value (or sales price, if it is lower.)
co-maker
A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.
commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.
commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a “loan commitment.”
common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
community property
In some western and southwestern states, 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 (comps)
An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
compensating factor
The strengths in a borrower’s financial profile that may offset any weaknesses.
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.
conforming loan
The current conforming loan limit is $275,000 and below. Conforming loan limits change annually.
construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
contract
An oral or written agreement to do or not to do a certain thing.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.
convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.
convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
corporate relocation
Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.
cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
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 report
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
credit repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
An amount owed to another.
deed
The legal document conveying title to a property.
deed in lieu
A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.
deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.
default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
delinquency
Failure to make mortgage payments when mortgage payments are due.
deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
depreciation
A decline in the value of property; the opposite of appreciation.
detached dwelling
A dwelling, usually containing one living unit that is freestanding.
disclosure
Bringing into view by uncovering, revealing knowledge, making known, freeing from secrecy or ignorance.
discount points
A fee added to your closing costs in exchange for a lower interest rate on a loan.
down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
due-on-sale provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
easement
A right of way giving 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 that is regular or guaranteed. The income may be from more than one source. Salary is generally the source, but other income may qualify if it is significant and stable.
encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.
escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
escrow account
The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.
escrow agent
An escrow agent oversees escrow, the process that some states use to complete a home’s sale or purchase. The buyer and seller sign an agreement that gives the escrow agent a detailed list of instructions on how escrow should be carried out, which includes how much money to collect, what documents to prepare and when to order a title search. The escrow agent is a neutral party who fairly represents both the seller and buyer. The escrow agent can be a lender, title company or real estate attorney.
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.
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest price a seller, willing but not compelled to sell, would accept.
Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.
Fannie Mae’s Community Home Buyer’s Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.
Federal Home Loan Mortgage Corporation (Freddie Mac)
A private agency created by the federal government that buys and sells mortgages in the secondary market.
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
The greatest possible interest a person can have in real estate.
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
finder’s fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
first mortgage
A mortgage that is the primary lien against a property.
fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.
flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
front ratio
A calculation of your total monthly housing expenses divided by your income.
A sum of money given to a home buyer as a present.
good faith estimate
An estimate of charges that a borrower is likely to incur in connection with a settlement.
Government National Mortgage Assoc (Ginnie Mae)
A federal corporation that insures mortgage-backed securities, and offers financing options to home buyers.
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
home equity line of credit
A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.
home equity loan
A loan secured by a second deed of trust on a house, typically used as a home improvement loan.
home inspection
A thorough examination of a property by a professional.
Home Owner’s Association
The association that manages a condominium or a planned unit development.
housing ratio
The ratio of the monthly housing payment in total (PITI – Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.
HUD
The U.S. Department of Housing and Urban Development.
An account used to pay your hazard insurance, mortgage insurance and property taxes.
income property
Any property, including land, which earns you money.
index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
installment
Regular payments given to a lender to repay a mortgage.
A type of ownership where two or more people equally share ownership of a property.
jumbo mortgage
The current loan limit for a conforming loan is $275,000. Loans for amounts above $275,000 are considered non-conforming or jumbo mortgages.
An encumbrance against property for money due, either voluntary or involuntary.
lender
The bank, mortgage company, or mortgage broker offering the loan.
lifetime cap
A provision of an ARM that sets the highest rate that can occur over the life of the loan.
liquid asset
A deposit of funds that can easily be made available as cash.
loan to value ratio (LTV)
The ratio of the amount of your loan to the appraised value of the home. The LTV will affect programs available to the borrower and generally, the lower the LTV the more lenient the lender may be in the approval process.
lock period
The amount of time that a lender will guarantee a loan’s interest rate. Once you’ve locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.
lock-in
A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
The specific amount of interest a lender adds to the index value to calculate the ARM interest rate at each adjustment period. Example: Index 1 Year Treasury Bill = 6.00% margin = 2.75%. The new rate would be 8.75%.
mortgage
A legal document that pledges a property to the lender as security for payment of a debt. This is no longer commonplace. A deed of trust is the instrument of choice.
mortgage banker
A company (or person) that lends money to home buyers.
mortgage disability insurance
A disability insurance policy that will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.
mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.
mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.
mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.
When the amount that you owe on a loan increases despite regular monthly payments.
net rental income
The total annual earnings from a rental property.
no income verification
Some loan products require only that applicants state the source of their income without providing supporting documentation such as tax returns or pay stubs. These programs carry a higher rate due to increased risk to the investor. This is also known as “stated income.”
non-conforming loan
Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $275,000 and above.
non-institutional lender
Any non-traditional lender, which is usually not strictly regulated by state or federal agencies.
non-liquid asset
Any item of value that can’t be converted easily into cash.
note
A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.
owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
A long-term loan taken out upon completion of a new building.
personal property
Anything that you can own that is considered movable.
PITI
Principal, interest, taxes and insurance–the components of a monthly mortgage payment.
Planned Unit Developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.
points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan. Points reduce the interest rate to the borrower while increasing yield to the investor.
pre-approval
When a lender commits to a loan before the borrower finds a property to buy.
prepaids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
pre-qualification
When a lender or broker figures out how much you qualify to borrow.
principal
Amount of debt, not including interest. The face value of a note or mortgage.
private mortgage insurance (PMI)
Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Investors generally require private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.
promissory note
A written promise to pay back a sum of money at a specific time.
The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
Real Estate Settlement Procedure Act (RESPA)
A federal law that says a lender must give a borrower an estimate of closing costs within 3 business days of applying for a loan.
real property
Land and anything permanently attached to it.
rebate
Compensation received by the broker from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with “points” (see above).
refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.
Regulation Z
A federal law that requires a lender to give borrowers the Truth in Lending Disclosure stating the annual percentage rate (APR) among other things.
residential loan application form (1003)
The name of the standard loan application that all lenders require a borrower to complete when applying for a loan.
residential mortgage credit report (RMCR)
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.
Any income that you receive on a cyclical basis.
second mortgage
A loan that is in second position behind the first mortgage. Sometimes used as additional down payment or to pull equity from the home.
secondary market
Companies that buy groups of loans from lenders and then sell them to other lenders and investors.
seller carry back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
settlement statement
A document that gives a breakdown of the costs that the buyer and seller are responsible for on the closing date.
sole and separate
A type of ownership in a property regardless of marital status. Community property states require additional Disclaimers for married persons holding title in this manner.
stated income
Some loan products require only that applicants “state” the source of their income without providing supporting documentation such as tax returns or pay stubs. These programs carry a higher rate due to increased risk to the investor.
survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.
sweat equity
A program that gives a buyer part or all of the money for a down payment in exchange for hours of labor helping to build the home. This program has very specific guidelines and is typically not available to conventional borrowers.
A type of ownership where two or more people share ownership of a property, but not necessarily equally.
tenants-in-common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.
term
The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years.
title
The evidence one has of right to possession of land.
title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.
title search
An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.
total debt ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.
trailing spouse income
The anticipated income of the spouse of an employee who is being transferred to a new area. Typically, 50% of the income previously earned by the spouse is used.
Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions
A lender’s process to evaluate whether or not to approve the borrower for a loan.
unsecured loan
A debt that isn’t backed by collateral.
A form completed by a bank or other depository to verify available funds. Normally bank statements are used in lieu of this form.
Verification of Employment (VOE)
A form completed by the employer to confirm income and dates of employment.
Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.