Note: These definitions are intended only as a guide. Terms might be used differently in different jurisdiction
Acceleration Clause
A provision in a mortgage note that gives a lender the right to demand repayment of the entire balance of the loan under certain conditions, for example, if the borrower fails to make payments on time.
Additional Principal Payment
An amount of more than the scheduled principal amount due paid by the borrower. These payments reduce the remaining balance and shorten the term of the loan.
Adjustable-Rate Mortgage (ARM)
A mortgage that allows the lender to adjust the interest rate on the basis of changes in a specified index.
Affordability Analysis
An estimate of a borrower's ability to afford the purchase of a home and/or the payment on a loan based on factors including income, liabilities, the type of mortgage, the loan amount, purchase price, the expected closing costs, etc.
Amortization
The gradual reduction of mortgage debt through regularly scheduled payments made over the term of the loan.
Annual Percentage Rate (APR)
A measure of the cost of credit stated as an annual (yearly) rate taking into account the stated interest rate, plus certain other charges.
Appraisal
A written estimate of a property's value prepared by a qualified appraiser.
Appreciation
An increase in a property's value.
Assessed Value
The value placed on property, usually for the purpose of taxation.
Assessor
A qualified official who is able to establish the value of a property for taxation purposes.
Asset
Anything of monetary value owned by a person or company. Assets include real property, jewelry, stocks, bonds, mutual funds, etc.
Assumable Mortgage
A mortgage loan that can be assumed (taken over) by the buyer when a home is sold. The assumption of a mortgage describes the situation when the buyer of real property takes over the seller's existing mortgage. The seller remains liable unless released by the lender from the obligation. (If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender's consent.)
Balance Sheet
A financial statement showing assets, liabilities, and net worth as of a specific date.
Balloon Mortgage
A mortgage in which the borrower's monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must either repay the remaining balance in a single final payment or refinance the loan.
Balloon Payment
The final lump sum payment made at the maturity date of a balloon mortgage.
Bankruptcy
A legal way for debtors to eliminate or restructure their debts in times of extreme financial difficulty.
Before-Tax Income
Total income before taxes are deducted. Also known as "gross income."
Biweekly Payment Mortgage
A mortgage with payments due every two weeks.
Building Code
Local regulations that set forth construction and maintenance standards and requirements for buildings. The codes are enacted to protect public safety, health and welfare.
Cap
For an adjustable-rate mortgage (ARM), a limit on the amount the interest rate or mortgage payments may change.
Certificate of Deposit
A document issued 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.
Chain of Title
A list showing all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Clear Title
Ownership that is free of liens, defects, or other legal encumbrances.
Closing
For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property to complete the transaction. Sometimes closing is referred to as "escrow," a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions.
Closing Agent
The person (or entity) responsible for coordinating the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) The closing is typically conducted by title companies, escrow companies or attorneys.
Closing Costs
The fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney???s fee, and prepaid items, such as escrow deposits for taxes and insurance.
Closing Date
The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.
Co-borrower
Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.
Collateral
An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan agreement.
Collection
The efforts a lender takes to collect past due payments.
Commission
The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).
Commitment Letter
A binding offer by a lender to loan money at a future date subject to the borrower's compliance with stated conditions.
Common Areas
Those portions of a building, land, or improvements and amenities owned 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.
Comparables
An abbreviation for "comparable properties," which are used as a comparison in determining the current value of a property that is being appraised.
Condominium
A real estate project in which each unit owner holds title to an individual unit in a building, and an undivided interest in the common areas.
Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.
Conventional Mortgage
A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as FHA, VA or RHS. Contrast with "Government Mortgage."
Conversion Option
A provision of some adjustable-rate mortgage (ARM) loans that allows the borrower to change the ARM to a fixed-rate mortgage at specified times after loan origination.
Convertible ARM
An adjustable-rate mortgage (ARM) that allows the borrower to convert the loan to a fixed-rate mortgage under specified conditions.
Cooperative (Co-op) Project
A project in which a corporation holds title to a residential property and sells shares to individual buyers, who then receive a proprietary lease as their title.
Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the weighted monthly average cost of deposits, advances, and other borrowings of members of the Federal Home Loan Bank of San Francisco.
Credit Bureau
An independent agency that gathers and maintains information on the debts and repayment records of individuals and businesses.
Credit History
A record of an individual's debts and repayment record. 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 document provided by a credit reporting agency containing information about an individual's previous mortgage history, bank loans, credit cards, and public records dealing with financial matters.
Credit Score
A numerical value that ranks a borrower's credit risk at a given point in time based on a statistical evaluation of information in the individual's credit file that has been proven to be predictive of loan performance.
Creditor
A person to whom money is owed.
Debt
An amount owed to another.
Debt-to-Income Ratio
The relationship between a borrower's total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.
Deed
The legal document conveying title to a property (i.e., transferring the ownership of real property from one party to another.)
Deed-in-Lieu of Foreclosure
The transfer of title from a borrower to the lender to satisfy the mortgage debt and avoid foreclosure. Also called a "voluntary conveyance."
Deed of Trust
A legal document that conveys title to real estate to a disinterested third party (a "trustee") who holds the title until the borrower has repaid the debt. In some states, this document is used in place of a mortgage.
Default
The failure to make a scheduled payment or otherwise comply with the terms of a mortgage loan or other contract.
Delinquency
Failure to make a payment when it is due. The condition of a loan when a scheduled payment has not been received by the due date, but generally used to refer to a loan for which payment is 30 or more days past due.
Discount Point
A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.
Down Payment
The amount of cash a buyer puts toward a purchase.
Due-on-sale Clause
A provision in a mortgage that allows the lender to demand repayment in full of the outstanding balance if the property securing the mortgage is sold.
Earnest Money Deposit
A deposit submitted with a purchase offer to show that the buyer's offer is being made in "good faith."
Easement
A right to the use of, or access to, land owned by another.
Encroachment
The intrusion onto another's property without right or permission.
Encumbrance
Any claim on a property, such as a lien, mortgage or easement.
Equity
The owner's interest in a property, calculated as the current fair market value of the property less the amount of existing liens.
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
An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance premiums, or other charges when they are due. Sometimes referred to as an "impound" or "reserve" account.
Escrow Analysis
The accounting that a mortgage servicer performs to determine the appropriate balances for the escrow account, compute the borrower's monthly escrow payments, and determine whether any shortages, surpluses or deficiencies exist in the account.
Eviction
The legal act of removing someone from real property.
Executor
A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.
Fair Market Value
The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.
Federal Housing Administration (FHA)
An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.
FHA-Insured Loan
A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).
First Mortgage
A mortgage that is the primary lien against a property.
First Time Home Buyer
A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.
Fixed-Period Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.
Fixed-Rate Mortgage (FRM)
A mortgage loan in which the interest rate does not change during the entire term.
Foreclosure
The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.
Forfeiture
The loss of money, property, rights, or privileges due to a breach of a legal obligation.
Fully Amortized Mortgage
A mortgage in which the monthly payments are designed to retire the obligation at the end of the mortgage term.
Ground Rent
Payment for the use of land when title to a property is held as a leasehold estate (that is, the borrower does not actually own the property, but has a long-term lease on it).
Growing-Equity Mortgage (GEM)
A fixed-rate mortgage in which the monthly payments increase according to an agreed-upon schedule, with the extra funds applied to reduce the loan balance and loan term.
Home Equity Conversion Mortgage (HECM)
A special type of mortgage-developed and insured by the Federal Housing Administration (FHA) that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Sometimes called a reverse mortgage.
Home Equity Line of Credit
A type of revolving loan, that enables a home owner 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 the property.
Home Inspection
An examination of the construction, condition and internal systems of a home prior to purchase; satisfactory home inspection may be a condition of purchase.
Homeowner's Insurance
A broad form of insurance coverage that combines hazard insurance with personal liability protection and other coverage.
Homeowner's Warranty (HOW)
Insurance offered by a seller that covers certain home repairs and fixtures for a specified period of time.
Homeowners' Association
An organization of homeowners residing within a particular area whose principal purpose is to ensure the provision and maintenance of community facilities and services for the common benefit of the residents.
Housing Expense Ratio
The percentage of a borrower's gross monthly income that is devoted to housing costs.
Income Property
Real estate developed or purchased to produce income, such as a rental unit.
Index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, stated in the note.
Initial Interest Rate
The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the "start rate."
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Installment Debt
A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).
Interest
The fee charged for borrowing money, usually expressed as an annual percentage of the principal.
Interest Accrual Rate
The percentage rate at which interest accumulates or increases on a mortgage loan.
Interest Rate Cap
For an adjustable-rate mortgage, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.
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.
Investment Property
A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower's primary residence. Contrast with "second home."
Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.
Jumbo Loan
A loan that exceeds the mortgage amount eligible for purchase by traditional measures. Also called "nonconforming loan."
Junior Mortgage
A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage.
Late Charge
A penalty imposed by the lender when a borrower fails to make a scheduled payment on time.
Lease-Purchase Option
An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.
Liabilities
A person's debts and other financial obligations.
Liability Insurance
Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.
Lien
A legal encumbrance or claim on property as security for a debt.
Liquid Asset
A cash asset or an asset that is easily converted into cash.
Loan Origination
The process by which a lender makes a loan which may include taking a loan application, processing and underwriting the application, and closing the loan.
Loan Origination Fee
A fee to cover some of the administrative costs of processing a loan. It is often expressed in points. One point is equal to 1 percent of the loan amount.
Loan-To-Value (LTV) Ratio
The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property's value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
Lock-in
An agreement in which the lender agrees to "lock-in" the borrower's interest rate for a set period of time before closing.
Margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.
Maturity Date
The date on which a mortgage loan is scheduled to be paid in full, as stated in the note.
Modification
Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.
Mortgage
A loan to finance the purchase of real estate, for which the borrower pledges the real property as security for the repayment of the loan. The borrower gives the lender a lien on the property as collateral for the loan.
A company that specializes in originating real estate loans, and typically uses its own funds or warehouse line of credit to close loans.
Mortgage Broker
An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans, but generally does not use its own funds to close the loan. Mortgage brokers often act as independent contractors and not as an agent of the borrower or lender.
Mortgage Insurance (MI)
Insurance that protects lenders against losses caused by a borrower's default on a mortgage loan. MI typically is required if the borrower's down payment is less than 20% of the purchase price.
Mortgagee
The institution or individual to whom a mortgage is given; the lender.
Mortgagor
The owner of real estate who pledges property as security for the repayment of a debt; the borrower.
Negative Amortization
An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.
Net Worth
The value of a company or individual's assets, including cash, less total liabilities.
Nonliquid Asset
An asset that cannot easily be converted into cash.
Note
A written promise to pay a specified amount under the agreed upon conditions.
Note Rate
The interest rate stated on a mortgage note, or other loan agreement.
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 to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is 1 percent of the mortgage amount.
Owner Financing
A transaction in which the property seller provides all or part of the financing for the buyer's purchase of the property.
Owner Occupied Property
A property that serves as the borrower's primary residence.
Partial Payment
A payment that is less than the scheduled monthly payment on a mortgage loan.
Payment Change Date
The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.
Payment Cap
For an adjustable-rate mortgage (ARM) or other variable rate loan, 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
An acronym for the four primary components of a monthly mortgage payment: principle, interest, taxes, and insurance (PITI).
Point
An amount equal to 1 percent of the loan amount.
Power of Attorney
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Pre-Approval
A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant???s credit history and may involve the review and verification of income and assets to close.
Pre-Qualification
A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.
Prepayment
Any amount paid to reduce the principal balance of a loan before the scheduled due date.
Prepayment Penalty
A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principle balance.
Principal
The amount if money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.
Private Mortgage Insurance (PMI)
Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower.
Promissory Note
A written promise to repay a specified amount over a specified period of time.
Purchase and Sale Agreement
A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.
Purchase Money Mortgage
A mortgage loan that enables a borrower to acquire a property.
Qualifying Guidelines
Criteria used to determine eligibility for a loan. |
