Glossary of Mortgage Terms

A - B - C - D - E - F - G - H - I - J - K - L - M - N - O - P - Q - R - S - T - U - V - W - X - Y - Z

A

Abstract of Title : A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an option as to the condition of title. Still in use in some states, but giving way to the use of title insurance.

Adjustable Rate Mortgage(ARM) : A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARM's.

Amenity : a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, Woods, water) or man-made (like a swimming pool or garden).

Amortization : repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)

Amortization table : A time table or schedule to give you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you'll repay during your mortgage term.

Annual Interest CAP : A limit on the annual interest rate that a loan can increase each year.

Application : the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Annual Percentage Rate (APR) : calculated by using a.A standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan

Appraisal : a document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser : a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

ARM : Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.

Arrears : Payment made after its due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance

Assessor : a government official who is responsible for determining the value of a property for the purpose of taxation.

Assets : The things of value that you own, such as your home, car or summer home.

Assumable mortgage : a mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

( Back to Top )

B

Balloon Mortgage : a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower. A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "Balloon" is due at maturity.

Balloon Payment : The final payment of a mortgage which is larger than the regular payment; it usually extinguishes the debt

Bankruptcy : a federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Below prime : A variable rate mortgage in which the interest rate varies with money market conditions.

Binder : A report issued by a title insurance company setting forth the condition of title and setting forth conditions, which, if satisfied, will cause a policy of title insurance to be issued.

Borrower : a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Bridge financing : A loan made for a short term, to "bridge" (or cover) the time gap between completing the purchase of one property and finalizing arrangements to pay for it.

Building code : based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget : a detailed record of all income earned and spent during a specific period of time.

( Back to Top )

C

Cap : a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease. A limit on how much the interest rate or monthly payment of an ARM change, either at each adjustment or during the life of the mortgage.

Cash reserves : a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Carrying costs : The expenses of living in and maintaining a home and property. This includes mortgage payments, property taxes, heating, repairs, maintenance fees, etc.

Certificate of title : a document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Closing : also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing costs : customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.

Closing Statement : The statement which lists the financial settlement between buyer and seller, and also the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

Commission : an amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction..

Condominium : a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.

Construction Loan : Short term financing of real estate construction. Generally followed by the long term financing called a "take out" loan, issued upon completion of improvements.

Contingency : The dependence upon a stated event which must occur before a contract is binding.

Conventional loan : a private sector loan, one that is not guaranteed or insured by the U.S. government, such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly know as Farmers Home Administration, or FmHA

Cooperative (Co-op) : residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

Credit history : history of an individual's debt payment; lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit report : a record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.

Credit bureau score : a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.

( Back to Top )

D

Debt-to-income ratio : a comparison of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed : the document that transfers ownership of a property.

Deed-in-lieu : to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Default : the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Defective Title : Title to a negotiable instrument obtained by fraud. Title to real property which lacks some of the elements necessary to transfer good title

Delinquency : failure of a borrower to make timely mortgage payments under a loan agreement.

Deposit : A sum of cash that must be paid to the seller by the purchaser. This money is a symbol of the purchaser's commitment to buy. If the offer is accepted, the deposit is applied to the down payment. If the buyer turns down the offer later, the deposit may or may not be returned.

Depreciation : Decrease in value to real property improvements caused by deterioration or obsolescence.

Down payment : The amount of money put forward by the buyer toward the purchase price of a home.

Discount point : normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Disbursements : Payments made during the course of an escrow or at closing.

Down payment : the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.

( Back to Top )

E

Easement : A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.

EEM : Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase

Eminent Domain : A Government right to acquire private property for public use by condemnation, and the payment of just compensation.

Encroachment : Construction onto the property of another, wall, fence, etc.

Encumbrance : A claim, line charge, attached to and binding real property.

Equity : an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.

Escrow account : a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Escrow Reimbursement : An assumptions or wrap loan transactions, the buyer reimburses the seller for the current balance of his escrow (or impounded) funds.

( Back to Top )

F

Fair Housing Act : a law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair market value : the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fannie Mae : Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

FHA : Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Federal Tax Lien : A lien attached to property for nonpayment of a federal tax.

Fee Simple : An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited.

Fixed-rate mortgage : a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. They generally have repayment terms of 15, 20, or 30 years. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.

Flood insurance : insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure : a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac : Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders With funds for new homebuyers.

Full Disclosure : Revealing all the known facts which may affect the decision of a buyer or tenant.

( Back to Top )

G

General Lien : A lien such as a tax lien or judgment lien which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to a specific property.

Ginnie Mae : Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Good faith estimate : an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Grandfather Clause : The clause in a law permitting the continuation of a use, business, etc., which, when was permissible but, because of a change in the law is now not permissible

Ground Rent : Rent paid for vacant land. If the property is improved, ground rent is the portion attributable to the land only.

( Back to Top )

H

Home inspection : an examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.

Home warranty : offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; ,overage extends over a specific time period and does not cover the home's structure.

Home Owner Association : An association of people who own homes in a given area for the purpose of improving or maintaining the quality of the area

Homeowner's insurance : an insurance policy that combines protection against damage to a dwelling and Is contents with protection against claims of negligence )r inappropriate action that result in someone's injury or )property damage.

Housing counseling agency- provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and homebuying.

HUD : the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HVAC : Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

( Back to Top )

I

Impound Account : Account held by a lender for payment of taxes, insurance, or other

Independent Contractor : The term is most important as used to describe the relationship of broker and salesperson, employee or independent contractor. If employee, the broker must withhold income tax and pay social security, provide workmen's compensation, and may be liable for some negligent acts of the salesperson while on the job. All of this is avoided by the broker if salesperson is an independent contractor

Index. a measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Inflation : the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.

Insured Mortgage : A mortgage insured against loss to the mortgagee in the event of default and failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

Interest : a fee charged for the use of money .

Interest rate : the amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Insurance : protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

( Back to Top )

J

Joint Tenancy : An undivided interest in property, taken by two or more joint tenants. The interests must equal, accruing under the same conveyance, and beginning at the same time. Upon death of a joint tenant the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Judgment : a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

( Back to Top )

L

Late Charge : A penalty for failure to pay an installment on time.

Lease with Option to Purchase : A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

Lease purchase : assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lender : A general term encompassing all mortgages, and beneficiaries under deeds of trust.

Letter of Intent : A formal method of stating that a prospective developer, buyer or lessee, is interested in property.

Lien : a legal claim against property that must be satisfied When the property is sold

Limited Partnership : A partnership consisting of one or more general partners who conduct the business and are responsible for losses, and one or more special partners, contributing capital and liable only to the amount contributed.

Lis Pendens : A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation

Loan : money borrowed that is usually repaid with interest.

Loan origination fees :  Are fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.

Loan fraud : purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan-to-value (LTV) ratio.- a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Lock-in : since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss mitigation : a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan

( Back to Top )

M

Marketable Title : Title which can be readily marketed to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumberances.

Mechanics Lien : A lien created by statue for the purpose of securing priority of payment for the price of value of work performed and materials furnished in construction of repair of improvements to land, and which attached to the land as well as the improvements.

Margin : an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Multiple Listing Service (MLS) : A computer-based system for relaying information to real-estate agents about properties for sale.

Mortgage : a lien on the property that secures the Promise to repay a loan. It is the document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrower fails to pay off the loan.

Mortgage banker : a company that originates loans and resells them to secondary mortgage lenders like : Fannie Mae or Freddie Mac.

Mortgage broker : a firm that originates and processes loans for a number of lenders.

Mortgage insurance : a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.

Mortgage insurance premium (MIP) : a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.

Mortgage Modification : a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Mortgage Warehousing : A system whereby a mortgage company will hold loans which would ordinarily be sold, in order to sell later at a lower discount. These are used as collateral security with a bank to borrow new money to loan.

( Back to Top )

N

Negative Amortization : Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM as a payment cap that results if monthly payments not high enough to cover the interest due.

Nonconforming Use : A property which does not conform to the zoning of an area.

Note : A written promise to repay a certain sum of money on specified terms.

( Back to Top )

O

Offer : indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Origination : the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination fee : the charge for originating a loan; is usually calculated in the form of points and paid at closing.

Overages : the difference between the lowest available price and any higher price that the home buyer agrees to pay for the loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.

( Back to Top )

P

PITI : Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

Points : A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000, one point is means you pay $1000 to the lender. Lenders frequently charge points in both fixed-rate and ARM in order to increase the yield of the mortgage and to cover loan closing costs. These points are usually collected at closing may be paid by the borrower or the home seller, or may be split between them.

Private mortgage insurance (PMI) : protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value greater than 80 percent of the appraised value.

Pre-approve : lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-foreclosure sale : allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-qualify : a lender informally determines the maximum amount an individual is eligible to borrow.

Premium : an amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment : payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.

Principal : the amount borrowed from a lender; doesn't include interest or additional fees.

Prorate : To divide in proportionate shares, such as taxes, insurance, rent, or other items.

Purchase Money Mortgage : A Mortgage given by the buyer to the seller as part of the purchase consideration, as opposed to a hard money mortgage.

( Back to Top )

Q

Quit Claim Deed : A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property.

( Back to Top )

R

Radon : a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Rate (interest) : The interest rate during the term of your mortgage.

Realtor : A real estate professional who is a member of a local real estate board and the Canadian Real Estate Association.

Real estate agent : an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

REALTOR : a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.

Refinancing : paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Rehabilitation mortgage : a mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Reissue rate : A charge for a title insurance policy if a previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

REIT (Real Estate Investment Trusts) : A method in investing in real estate in a group, with certain tax advantages.

Release : An instrument releasing property from the lien of the mortgage, judgment, etc.

Recession of Contract : Annulling a contract and placing the parties to it in a position as if there had not been a contract.

RESPA : Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships

( Back to Top )

S

Settlement : another name for closing .

Security : Property, or assets, offered as backing for a loan. In the case of mortgages, the property being purchased or refinanced forms the security for the loan.

Second mortgage : A mortgage granted when there is already a mortgage, or first mortgage registered against a property.

Set Back Ordinance : Regulates the distance from the lot line to the point where improvements may be constructed

Settlement Statement : A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.

Sheriff's Deed : Deed given at sheriff's sale in foreclosure of mortgage.

Specific Performance : An action to compel the performance of a contract, when money damages for breach would not be satisfactory.

Special Forbearance : a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Statutory Lien : An involuntary lien, includes tax liens, judgment liens, mechanic liens, etc.

Subordinate : to place in a rank of lesser importance or to make one claim secondary to another.

Survey : A document providing details of a property's boundaries, measurements and structures. It also describes any easements, rights-of-way or encroachments made by either your property or by adjoining properties onto your property.

Survey : a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat equity : using labor to build or improve a property as part of the down payment

( Back to Top )

T

Tax Lien : Lien for nonpayment of taxes.

Tax Sale : Public sale of property at auction by governmental authority, after a period of nonpayment of property taxes.

Tenancy by the Entirety : A form of ownership by husband and wife whereby each owns the entire property. In event of death of one, the survivor owns the property without probate.

Term : The length of time a lender will lend mortgage funds to a borrower. Terms can be from 5 years to 50 years. On certain mortgages, the borrower can either repay the balance-the remaining principal plus interest-of the mortgage, or renew the mortgage for another term.

Thrift institution :  a general term for savings banks and savings and loan associations.

Title : The legal evidence of ownership to a property.

Title 1 : an FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien.

Title insurance : insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.

Title search : a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Total debt service (TDS) ratio : The percentage of a borrower's gross (before tax) monthly income needed to cover payments for housing costs, including principal, interest, taxes, heating costs and condominium fees (if applicable), and all other debts and obligations, such as loans and credit cards. The total should not be more than 40% of gross monthly income

Transaction, settlement, or closing costs : may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys’ fees; recording fees; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range.

Truth-in-Lending : A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

( Back to Top )

U

Underwriting : The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

( Back to Top )

V

VA : Department of Veterans Affairs : a federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.