Acceleration Clause


A clause in your mortgage allowing the lender to demand payment for the outstanding loan balance. The primary reasons loan acceleration are borrower defaulting on loan payment or transferring title without lender approval.


Adjustable-Rate Mortgage (ARM)


A mortgage in which the interest changes periodically, based on variations in a mathematical index.

Adjustment Date

The date the interest rate changes on an adjustable-rate mortgage (ARM).


Amortization


The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.


Amortization Schedule


This is a mathematical table demonstrating the amount of mortgage payment that is credited toward payment of principal and the amount that applies to interest for the loan It will also calculate the balance due following each payment until the balance is paid off.


Annual Percentage Rate ( aka APR )


This is a value calculated using a government approved formula to show the true annual cost of your loan in a percentage number. An approximation for this value can be calculated by first deducting any closing costs from the specified loan amount. Next calculate what the interest rate would be on the actual loan payment. Annual percentage rate will be higher than your loan rate.


Application


This is the form a borrower uses to make a mortgage loan application. It request information about the borrower's income level, all assets, including savings, plus borrower's debts, bankruptcy, and other financial information.


Appraisal


A written basis for the price of a property; using several analysis factors including the purchase price for similar properties within a specified geographic area.


Appraised Value


This is an opinion of fair market value for a particular property. It is based on the property appraiser's experience, knowledge and full analysis of the property being appraised and analysis of the property. An appraisal is based primarily on comparable property sales; an appraisal typically is used as the sales and purchase price.


Appraiser


A person who, through formal education and training becomes experienced to estimate the valuation of real property and / or personal property(ies). Most appraisers are independent contractors and not employed by lender or real estate sales company.


Appreciation


The increase in the valuation of any property, real or personal, as a result of changes in the marketplace inflation or deflation, desirability, and other economic factors.
Assessed Value


This is the property valuation based on the processes used by public / government tax assessor for property tax value.


Assessment


The valuation of property, either real estate or personal property, for taxation purposes.


Assessor


A public official / government employee who calculates the taxation value for property.


Asset


Items of value owned by a person. Liquid assets are those that can be rapidly sold and converted to cash. This includes stocks and bonds, mutual fund accounts, and bank accounts. Assets not considered liquid are real estate, personal notes of debt, and personal property.


Assignment


The transfer of ownership of a mortgage from one financial company or individual to company or person(s).


Assumable Mortgage


A mortgage that is transferred to the buyer when a property is sold. The borrower must be considered a qualified buyer for this to occur.


Assumption


A phrase used to describe the process of a buyer assuming a seller's mortgage.


Balloon Mortgage


This is a mortgage requiring the remaining principal balance be completely paid off on a specified date in the future. As an example, a loan could be set up on a 30 amortization payment amount; however, the payoff date could be established at the end of the seventh year of mortgage payments; at which time the entire balance of the loan is due.


Balloon Payment


This is the final payment for a balloon mortgage that must be paid in full on a specified date.


Bankruptcy


A legal procedure where an individual or individuals can restructure or eliminate debt and other financial obligations. A bankruptcy is listed as a specific type by number with the most common bankruptcy type for individuals is named the "Chapter 7" bankruptcy. This eliminates most borrower debt for the individual. However, following a bankruptcy, an individual(s) borrower will not typically qualify for a high quality loan (called an 'A paper loan') for two years after completion of the bankruptcy.


Bill of Sale
This is a written document transferring a property title another party. A common example is the sale of an automobile. Lenders will require a bill of sale proving that a transaction occurred prior to loaning funds to pay for the vehicle.


Biweekly Mortgage


This is a mortgage where the borrower makes payments every two weeks, rather than the more common monthly mortgage payment. The borrower will then make thirteen payments during a calendar year. This additional payment will reduce the principal owed and reduces the time for paying off the mortgage. There are several companies in the mortgage industry that will create a biweekly payment program for a borrower. This service includes paying up front to establish the services and a transfer of funds fee for each biweekly payment. The payments are deposited into a trust account, then the additional funds are used to make the add-on payment at the end of the year, and that amount will be credited to the principal. A borrower can avoid the additional fees by simply making extra payments toward principal on a monthly basis.


Bond Market


This is a transaction market that includes the purchase and sale of thirty year treasury bonds on a daily basis. As bond prices fluctuate, the price of fixed rate mortgages will go up or down, so lending institutions track the bond market very closely. The price fluctuations influencing the Treasury Bond market influence mortgage rates. As a result, mortgage rates can change daily, occasionally changing within a business day, reflecting volatility in the market.


Bridge Loan


A bridge loan is used by individuals who are in the process of purchasing a property, but have not sold another property (typically a home) that is available for sale. The bridge loan is used for making down payment on the newly purchased property. This type of loan is no longer popular because lenders will make second mortgage loans available to accomplish the same goal.


Broker


In the real estate business most realtors are actually agents of a firm, working under the license of a real estate broker. An agent may also be a broker, either self-employed or working for another broker. Within the mortgage industry, a broker usually is typically an individual or firm that does not lend money for real estate loans, but will broker loans to a lending institution, like a mortgage company. A broker is usually considered to be anyone acting as an agent who is paid to arrange for parties to come together for a business transaction.


Buy-down


This terms refers to a fixed rate mortgage where the original interest rate is said to be "bought down" for a period of time (usually a temporary time span); typically a period of time from one to three years in duration. After the buydown period, the payment is calculated at the original loan rate. For a buy-down to occur a sum of money is paid, then held in a special account that is used to additional funds to the monthly payments. Ordinarily the extra funding is provided by the seller as a financial incentive to encourage the sale of a property. Another buy-down is called a "lender funded buy-down." This occurs when the lender pays the initial buy-down amount. The lender can do this because the rate on the note rate for the loan, following the buy-down adjustments, will be at a higher rate than current market rate. This can assist the borrower in qualifying for a higher loan amount for a property purchase. Also, the buy-down is used when a borrower expects an increase in earnings, but needs to make lower payments upon initial purchase.


Call Option


This is much like an acceleration clause.


Cap

An adjustable rate mortgage has an interest rate that can vary, however fluctuations are most often have a time limit. The limiting factor may be the amount a loan can be adjusted for a specific time period, such as six months, a year, or the entire lifetime of the loan. Some adjustable rate mortgages, can have a cap that covers the full time period of the loan, but allow for the interest rate to be adjusted at any time; however there is usually a requirement for a minimum payment that can change once per year. The change in the payment amount per year is limited, and this limit is called a cap.


Cash-out Refinance

This occurs when a borrower refinances a loan mortgage for more money than a current loan in order to receive cash at closing.


Certificate of Deposit

A deposit with a time restriction at a lending institution that will pay a specific interest amount to the person depositing the funds.


Certificate of Deposit Index

This is an index (measurement) used in establishing interest rate changes on some ARMs (adjustable rate mortgages. The index is calculated by determining the average payments for certificates of deposit at lending institutions.


Certificate of Eligibility

This is verification from Veterans Administration stating a military veteran's eligibility to receive a Veterans Administration real estate loan.


Certificate of Reasonable Value (CRV)

This is a document issued by the Veterans Administration following a real estate appraisal on a property that will be financed by a VA loan.


Chain of Title

Documents stating all title transfers for a property over a period of time.


Clear Title


This is a property title that is free of legal issues or liens regarding property ownership.


Closing


This term can have different definitions depending on the state where property is being purchased. A closing can mean all documents are recorded with the proper authorities. In other states, the closing can mean the signing of all documents and exchange of money for the purchase.


Closing Costs


Closing costs are classified into two groups: one is called "pre-paid", the other is all "non-recurring" closing costs. Pre-paid costs are those that will reoccur at times, like property tax and insurance coverage. The non-recurring closing costs are those that are paid at closing on a one-time basis.


Closing Statement


See Settlement Statement.


Cloud on Title


These are conditions that are discovered during a title search that negatively affect the title to real property. These negative situations are usually removed by a release, decision of courts, or by deed.
A person who signs a loan, usually to help close a real estate transaction, and becomes a responsible party to the loan; obligated to pay, if necessary. This person is also listed on the title of the property.


Collateral


Property that a borrower risks losing if a loan for purchase is not repaid according to terms of the loan. For a real estate mortgage, the property is the collateral and the terms of repayment are listed by mortgage or trust deed.


Collection


If a borrower fails to make timely payments, a lender may place a loan in the "collection" category. The lender is required to notify the borrower by mail and forward necessary documents. If the borrower fails to make the payments current, the property may go into foreclosure.


Commission


Commissions in real estate sales are paid by the seller or buyer to the agent or broker who helps consummate the sale of property. Other parties may also receive commissions.


Common Area Assessments


This is also called a the "Homeowners Association Fees," typically for a condominium owners association. Owners of condominiums pay into the owners association account to maintain landscaping, outdoor lighting, streets, signs and other amenities.


Common Areas


Areas of a planned unit developments, such as a condominium, where all unit owners have access and share the expense for maintenance and replacement and daily upkeep. Common areas include parking lots, landscaped areas, recreational facilities, corridors, signs, curbing and streets, tennis and/or swimming facilities, laundry facilities, garbage, outdoor lighting, and others.


Community Property
This is property acquired by a married couple during the time of the marriage. This property is said to be "jointly owned."


Comparable Sales


This is a comparison of recent sales of similar properties in a local areas used to establish the property's market value. This is also called "comps."


Condominium


A type of real property ownership where all owners share in ownership of common areas and buildings. The exception to this is the interior of the individual units to which each owner has title.


Condominium Conversion


This is the process of transferring ownership of a building, typically apartment building, to condominium ownership.


Condominium Hotel


A condominium with rentals occupancy including food services and other amenities. It is operated like a commercial hotel company although the individual units are privately owned. This is a popular means of ownership for vacation rental accommodations.


Construction Loan


An interim loan used to pay for construction costs. A builder will be paid at specific intervals by a lender at various phases of the construction project.


Contingency


This is a requirement that must be met prior to a contract becoming legally binding. Home purchases often have a contingency that requires a property inspection by a licensed home inspector.


Contract


This is a written or agreement to perform or not perform certain actions.


Conventional Mortgage


This is the most common type of mortgage, using saving and loan, banks, and other mortgage lenders, however, it does not refer to government loans, including Veterans Administration and FHA loans.


Convertible ARM


This is adjustable rate mortgage that provides the borrower the right to change the adjustable rate mortgage into a fixed-rate mortgage. There is a time limitation for exercising this right.


Cooperative ( Co-Op )


A type of multiple ownership for a multi-unit housing complex where residents have shares in the corporation that owns the property. This provides the right for a resident to occupy a specific unit or apartment.


Cost of Funds Index ( COFI )


This is an index used to establish interest rate fluctuations for some adjustable-rate mortgages (ARMs). It is a weighted average cost of the loans and savings of financial institutions like savings and loans and banks.


Credit


An agreement where a borrower receives something of value and makes a promise to repay a lender for the amount borrowed over a period of time or a specific date in the future.


Credit History


A record of a person's debt repayment history. A credit history is used by a mortgage lender to determine a potential borrower's credit risk.


Creditor


This is an individual to whom money is owed.


Credit Report


This is a document of an individual's credit history that is gathered and issued by a credit bureau for use by a lending institution to establish a borrower's credit qualifications for a loan.


Credit Repository


This is a service organization that collects, records, edits, and provides storage facilities for financial records and publicly recorded information regarding payment history of individuals who are requesting credit.


Debt


This is an amount, usually in terms of money, owed by one party to another.


Deed


This is a legal document that conveys title for a property from one party to another.


Deed-In-Lieu


Also known as a "deed in lieu of foreclosure." This conveys title to a mortgage lender when a borrower is in default on the property loan and attempts to avoid foreclosure. The lender may or may not initiate foreclosure proceedings if a borrower requests a deed-in-lieu. The deed-in lieu can prevent foreclosure procedures from starting and avoiding recording of documents as public records.


Deed of Trust


In some states, mortgages are not recorded. These states use a "deed of trust" which is similar to recording a mortgage.


Default


This is the term used to describe non-payment of a mortgage payment within a stated period of time. If a first mortgage loan is not made within 30 days of due date it is said to be in default.


Delinquency


This is the failure to pay a mortgage payment when it is due. Most mortgage payments are due on the first day of the month. If a payment is more than 30 days late, the mortgage loan is considered delinquent. When this occurs, mortgage lenders will report the late payment for the mortgage to a credit bureau and this may adversely affect the borrower's credit rating.


Deposit


This is an amount of money paid in advance as an act of good faith for purchase of a property. This is also called an "earnest money deposit" and is used to withdraw the property from the sales market while the buyer arranges financing for the property purchase.


Depreciation


This is a decline in the value of property; an accounting term indicating a lowering of value for any asset. It is also used to show an expense to lower taxable income. Lenders will add back the depreciation expenses for self-owned business borrowers and add it to income, helping the borrower qualify for a higher loan.


Discount Points


This is a term is usually used within the mortgage industry to refer to government loans, like VA and FHA loans. The discount points are "points" paid in addition to the one percent loan origination fee. Note: A "point" is considered to be one percent of the total loan.


Down Payment


This is the amount a purchaser pays toward purchase price that is paid in cash, and is excluded from the mortgage financing.


Due-On-Sale Provision


This allows a lender to demand payment in full for the entire balance owed when a borrower sells property that is used as security for a mortgage.


Earnest Money Deposit


A deposit made by a prospective buyer indicating a serious intention to purchase a property.


Easement


The right of way giving person who is not the property owner the right to go through, onto, or over the specified property.


Effective Age


This is a real estate appraiser's opinion of the physical condition of property's building(s). The true age of a building can be a shorter age, or longer age, than its effective age.


Eminent Domain


This is the right of a government to confiscate private property ostensibly for public use; however the government is required to pay fair market value for the property.


Encroachment


This is a real estate improvement, such as a building or driveway that crosses legal boundaries onto another property and is considered an illegal act.


Encumbrance


This includes legal restrictions like a mortgage or easements, or leases that restrict the sale or conveyance of property ownership.


Equal Credit Opportunity Act ( ECOA )
A federal law that states lenders and other creditors must make credit (loans) available without discrimination based on color, racial origin, natural origin, sex, age, religion and other factors.


Equity


This is an owner’s financial interest in a property. Equity is the mathematical difference between what a property might sell for (fair market value) and any amount owed to a mortgage or other financial liens.
Escrow


This is an item of value, usually money, deposited with a third party and deliverable once certain conditions are met. Typically the earnest money for a real estate transaction in laced in an escrow account until it is paid to the property seller at the transaction closing.


Escrow Account


A lender may establish an account for funds paid to a mortgage that are above the total for interest and principal payment on a monthly payment schedule. The extra funds are held in this account for payment of property tax and owner's 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.


Estate


This is considered an individual's ownership interest in real property. It is the total of all real property plus personal property holdings of an individual upon their death.


Eviction


This is the lawful removal of an occupant from real property by an owner.


Examination Of Title


This document is the report on the title of real property from public records, or it can be an abstract of the real property title.


Exclusive Listing
This is a written contract giving a licensed real estate agent the exclusive privilege of selling real property, and is usually limited to a specific time span.


Executor


A person usually named in a will who will administer an estate; if no executor is named, the court will appoint one.


Fair Credit Reporting Act


This is a law to protect consumers. It lists the rules for disclosing a consumer's credit by for agencies reporting credit and states procedures for correcting errors on a individual's credit report.


Fair Market Value


The highest price a prospective buyer will pay for a property. It is also the lowest price that a seller will accept as payment for a property.


Fannie Mae (FNMA)


The formal name is Federal National Mortgage Association, founded by an act of Congress. This company largest supplier of home mortgage funding in the United States.


Fannie Mae's Community Home Buyer's Program


This is an income-based lending program, where Fannie Mae, along with mortgage insurers offer underwriting guidelines that are flexible, to increase lower income prospective buyers more funds and reduces the cash necessary to buy a home.


Federal Housing Administration ( FHA )


This is an agency of the federal government's U.S. Department of Housing and Urban Development ( aka HUD). The primary purpose is to insure residential mortgages that are financed through lending institutions. FHA establishes the standards for underwriting loans and for construction. It does not plan development projects and does not loan money.


Fee Simple


The greatest/largest interest an individual can have in real estate.


Fee Simple Estate


An unlimited and unconditional estate of inheritance that represents the largest estate and greatest interest in land possible. There is no time limit for this estate. Note: A unit owner of a condominium owns only the the air space within his purchased area of the property. He is also an "owner in common" for the land and common area of the property.


FHA Mortgage


This is an FHA insured mortgage. An FHA loan is often referenced as a "government loan."


Firm Commitment


This is a lending institution agreement to finance a loan for a borrower for a specified property.


First Mortgage


The mortgage that is in the first position for any and all loans that have been recorded against a specific property. This typically refers to the date when the property loans are recorded.


Fixed-Rate Mortgage


A mortgage where the interest rate is static for the life span of the mortgage.


Fixture


This is personal property that converts to real property whenever it is permanently fixed/attached to real estate property.


Flood Insurance


Insurance that pays the insurance owner for physical damage to property as a result of flooding. Flood insurance is a requirement for all real estate located with flood areas as designated by federal law.


Foreclosure


This is the legal process where a borrower who is in default for a property mortgage loses their financial interest in the property. This frequently includes sale of the property by public auction and the money from this sale is used to pay down the mortgage. 401(k)/403(b)
An employer-sponsored investment plan where employees place tax-deferred income for their retirement or for specified emergency purposes. 401(k) plans are established by private companies, not government agencies. A 403(b) plan is the designation for a similar program for not for profit organizations.
401(k)/403(b) Loan. This is a loan that is used, typically for emergency situation, allowing for loans against the amount an individual has accrued in a 401 program. 401K plans usually allow individuals to withdraw funds for use as a down payment for purchasing residential real estate.


Government Loan (Mortgage)


This is a mortgage insured through by the FHA (Federal Housing Administration) or, it has is guaranteed by the VA (Department of Veterans Affairs)or through the RHS (Rural Housing Service).


Government National Mortgage Association ( Ginnie Mae )


This agency is part of the U.S. Department of Housing and Urban Development (HUD). The Government National Mortgage Association provides funds for lending institutions for funding VA and FHA government loans.


Grantee


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


Grantor


The person conveying an interest in real property.


Hazard Insurance


This is an insurance policy that covers physical damage to a property from damages from vandalism, fire, wind, or other events, listed within the policy coverage.


Home Equity Conversion Mortgage ( HECM )


This is typically called reverse annuity mortgage. This mortgage reverses the payment process, so the lender makes payments to the owner. This mortgage was designed for older individuals so they can convert home equity into immediate cash, usually as a monthly payment. With this mortgage the borrower qualifies based on the property values. The loan is not repaid until the borrower sells the property or is no longer the occupant.


Home Equity Line Of Credit


This is mortgage loan that is frequently in the second position to a first mortgage. It provides funds to the borrower based on the equity of the property, and usually has a percentage limitation.


Home Inspection


This is a complete inspection of a property by a licensed home inspection professional. The inspection includes the mechanical and structural condition of the examined property. The home inspection if often a contingency requested by a potential buyer prior to completion of a sale.


Homeowners' Association


This is a non-profit organization established to provide management services for the common areas with a condominium or PUD (planned unit development). This organization has no ownership interests in a condominium property. In a planned unit development, the organization holds the title to common areas of the property.


Homeowner's Insurance


This is an insurance policy combining owner's personal liability along with hazard insurance for an owner's home.


Homeowner's Warranty


This insurance is used by a home buyer to pay for repairs to items on the property if they need repair or replacement within a specified period following purchase. Typically the buyer asks the seller to pay for this insurance as part of the purchase contract; however, either party may pay for this insurance.


HUD Median Income


This is an income level used to determine loan eligibility for a specific geographic area, often a county or an MSA (metropolitan statistical area). The Department of Housing and Urban Development (HUD) calculates this figure.


HUD-1 Settlement Statement


This is a document containing an itemized listing of the funds paid at a property sale closing. This document includes statement for loan points, real estate commissions, initial escrow, and other points paid. Each expense item is noted on a specific line number of the document. This document notes the seller's net dollar amount and the amount the buyer pays at the time of closing. The document is printed on a Department of Urban Housing and Development (HUD) form and is also referred to as the "settlement sheet" or a "closing statement."


Implied Warranty


This implies that a landlord who is renting a residence will provide "quiet enjoyment" for the property and the property will be habitable for the renter.


Impound Account


This is type of trust account for funds that can be used for various purposes relating to a property. Mortgage lenders do require this type of account to pay assessments, property taxes, and property insurance as a means of protecting the lender's interest in the property against any tax liens or defaults. Some lenders require tax reserves of six months for FHA loans; and an insurance reserve of one full year. If the property is sold, the lending institution keeps the reserve and the buyer and seller must decide how to allocate the funds.


Improvement


This refers to a physical structure. Any structure placed on a piece of real estate that increases the value of that particular property. Examples would be: a fence, a new driveway, or a garage. It can also refer to a publicly owned physical structure that increases value, such as newly paved street, curbing, sewers, and sidewalks.


Index Rate


This is a rate that adjustable mortgage loans use to calculate their interest rate. At prearranged adjustment periods, the interest rate on the mortgage loan is adjusted up or down depending on the index rate. The index rate is calculated using for separate indexes. These include the Six-Month Certificate Of Deposit (CD) Spot Index, the One-Year Treasury Spot Index—This index, the Treasury Twelve-Month Average Index—This index, and the Eleventh District Cost-of-Funds Index—This index.


In-House Sale


This involves a property sale where listing broker is the only broker for the sale. This occurs when the agent listing the property locates a buyer, or another agent in the same brokerage locates the buyer.


Initial Rate


This is the beginning interest rate the and adjustable rate mortgage for the first adjustment period.


Installment Sale


This is an income tax process for reporting profits from the sale of property when the purchase is paid using installments. This relates to the situation where one or more payments will be paid following the end of the tax year in which the sale takes place.


Interest-Only


This is a type of loan where payments include only the interest for the loan, and does not include any payment toward the principal.


Interim Financing


This is a loan of short duration, typically used in the construction phase for a project. It is frequently called a "construction loan."


Intrinsic Value


This is a term used in real estate appraisal that refers to any value developed by a individual's personal preferences for a specific property type.


Inverse Condemnation


This is a situation where a property owner has the government purchase a property through the process of eminent domain. It is used when a government procedure or action makes it impossible for the owner to use the property.


Involuntary Lien


An encumbrance (lien) against a specific property without the property owner's consent.


IRS Tax Lien


This is lien placed by the federal government, or the Internal Revenue Service (IRS). This lien is used when an individual does not pay all federal taxes, like withholding taxes or personal income tax. This lien is considered a general lien on all personal property and all real estate holdings.


Joint Tenancy


A term that describes full and complete ownership by two (typically) parties. Upon death of one owner, surviving party has full ownership of the property.


Judgment


This is a decision that is established in a court proceeding. If there is a judgment against a borrower there may be a lien placed against the borrower's real estate property as a form of collateral for creditors.


Judicial Foreclosure


This is foreclosure that involves court proceedings, usually as a civil lawsuit involving a lender and a borrower. ome states use a foreclosure procedure that does not involve the courts.


Jumbo Loan


A loan that is larger than the limits set by Fannie Mae and Freddie Mac agencies. This is also called a "nonconforming loan," while a Fannie Mae or Freddie Mac loan is considered to be a "conforming loan."


Kickback


This is a form of payment for referring a customer, client, or buyer made to someone for a business referral. The customer is not aware of this payment; as opposed to a commission, where the customer does have knowledge of the referral payment. A kickback referral may result in a business transaction that is not in the best interest of the customer.


Kiosk


This is free standing structure that typically has multiple sides that are open and frequently located within a shopping mall or business center. This structure is used most often for the sale of products, usually small consumer items.


Lease


This is a written contract made by a property owner and a tenant (leasee) that lists the conditions of occupancy and the payment to be made by the tenant for a specific time period.


Leasehold Estate


A form of title for a property where the borrower (mortgagor) is not the owner, but does have a lease that is recorded for legal purposes.


Lease Option


This is a contract that allows a buyer to lease real estate with an option to buy. The monthly rent can include additional payment that accrues as payment toward a down payment. The sale price is specified at the time the contract is signed.


Legal Description


This is a description of property that is recognized by courts, that describes the location and identifies a specific property.


Lender


This may refer to a lending institution that loans funds to a borrower or and person who works for a lending institution.


Liabilities


These represent an individual’s financial obligation and can include short term debts, outstanding long term debt, plus any amount that an individual might owe to other individuals, institutions, or the government.


Liability Insurance


This is insurance that protects a property owner when there is a claim of negligence or action resulting in injury to a person or property. This insurance is typically included in a property owner's homeowner policy.


Lien


This is a legally binding claim against a person's property that is required to be paid off when the property is sold. A first trust deed and real estate mortgage are considered to be liens.


Life Cap


This is the limitation for an increase or decrease in an adjustable rate mortgage over throughout the span of the mortgage.


Line Of Credit


This is an agreement from a financial institution to give credit to up to a specified dollar amount, and for a specified time, to a borrower.


Liquid Asset


This is an asset that can be easily converted to cash, or it is a cash asset.


Loan


This principal amount (money) borrowed by individual, business, or institution, and is often repaid with an interest paid at the same time a payment is made toward repaying the principal.
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Loan Officer


An individual who works as representative of lending institution who work with borrowers to secure loans from the lending institution.


Loan Origination


This refers to the procedures involved in lending funds to a borrower.


Loan Servicing


This refers to the company accepting payment and process a real estate loan. In addition to processing payments this company manages the escrow account, send statements, collects any delinquent loans, makes certain that property taxes and insurance are paid, and manages assumptions and pay off amounts.


Loan To Value ( LTV )


This is percentage calculated from the amount of a real estate loan compared to the lower value between the appraised value of a property or its sale price.


Lock In


This occurs when a lending institution guarantees a set interest rate for a mortgage for a specified period of time.


Lock In Period


This is the time period a lending institution guarantees an interest rate for a real estate loan, to a specific borrower.


Margin


This is the mathematical difference between interest rate and the adjustable rate mortgage index. The margin stays static for the lifetime of a loan, however the adjustable rate index does fluctuate up and down.


Maturity


This is the date when the balance on the principal is due for a bond, loan or financial contract is due and must be paid on that date.


Merged Credit Report


This is a credit report that contains data from more than one primary credit data sources. This is not the format for a RMCR - the Residential Mortgage Credit report or a basic credit report.


Modification


This occurs when a lending institution adjusts the terms for a mortgage with no refinancing requirement. Changes are referred to a "modification."


Mortgage


This is a legal document that uses property as security for payment of a loan to a lender. Some states use a first trust deed rather than a mortgage.


Mortgage Banker


A mortgage banker is the institution that originates and provides funding for a mortgage loan. The loan is sold on the secondary mortgage market, to Ginnie Mae, Freddie Mac, or Fannie Mae. This term is also used to describe any company in the mortgage business, including mortgage brokers, or other types of lenders.


Mortgage Broker


This is a mortgage company that will originate a loan, then "brokers" the loan with another lending institution.


Mortgagee


In a mortgage agreement, this identifies the lending institution.


Mortgage Insurance ( MI )


Insurance that protects a lender against loss due to a default in payment on a residential home loan. This is not the same as PMI; that is the name of a company that is a mortgage insurer. Lenders require mortgage insurance on loans where the loan, compared to the value of the property, is above 80%. A mortgage above 80% that does not require mortgage insurance, will have a higher interest rate. Payment with the higher interest rate will use some of each payment to purchase mortgage insurance. An FHA loan will require the mortgage insurance for all loans.


Mortgage Insurance Premium ( MIP )


This is the amount paid by a borrower for mortgage insurance. This is paid to a private mortgage insurance company (MI) or to a government agency like the FHA.


Mortgage, Life, And Disability Insurance


This is a form of life insurance purchased by a borrower where the face value of the policy goes down as the principal is paid off. This policy may contain a provision for payment if the borrower becomes disabled. If the borrower dies during the life span of the policy the loan is paid off from the insurance policy. If the borrower becomes disabled, the insurance will pay for the mortgage payments. Disability coverage may not begin at the time of disability; there is typically a waiting period.


Mortgagor


In a mortgage agreement, this refers to the borrower.


Negative Amortization


This is an ARM allowing fluctuations in the mortgage interest rate without a direct relation to a minimum payment. When a borrower pays the minimum amount, this payment may not pay for all the interest that is. The borrower is, therefore not making total interest payment and this is called a deferred interest. This deferred interest then adds to the loan amount and the balance on the loan increases.


No Cash-Out Refinance


This is a type of refinancing that does not payout cash to the borrower. This refinance calculates a new loan balance covering the current balance and the cost of refinancing. This is also called a "rate and term" refinance.


No-Cost Loan


A lender can offer a no cost loan, however; there may be fees that are not associated with lender costs that are included in the loan, although they are not charged by the lender. These fees can include normal mortgage transaction fees, notary fees, recording fees, title insurance, settlement fees escrow fees, and appraisal fees. The interest rate is usually higher for this loan type.


Note


This is a legal instrument making the borrower responsible for a mortgage loan with a specified interest rate for a specific time period.


Note Rate


This is the mortgage note interest rate.


No-Points Loan


This is a mortgage loan that does not charge points; however, the interest rate on the mortgage is at a higher rate, typically one quarter percent higher than a loan that requires payment for points.


Notice Of Default


A legal written document sent to borrower who is in default for a mortgage payment, notifying the borrower of pending legal action, such as foreclose, is a possibility if the loan is not made current.


Original Principal Balance


This is the sum total for the principal balance for a mortgage loan prior to any payments being made by the borrower.


Origination Fee


For a government loan there is a loan origination fee of one percent for the total loan amount. There may be extra points charged referred to as "discount points." One point is equal to 1% of the total loan amount. To an origination fee is the total number of points that a borrower will pay for a conventional mortgage loan.


Owner Financing


This is a property sale/purchase where the seller finances the transaction, acting a "lender" for the borrower, without using a lending institution such as a bank or savings and loan.


Partial Payment


A payment does not fully pay for the scheduled payment on a mortgage loan. Most lending institutions do not accept anything less than full payment, unless there is a valid reason and the borrower makes arrangements with the lender.


Payment Change Date

This is the date an adjustable rate mortgage or a GPM (graduated payment mortgage) goes into effect and monthly payment amount is changed. Usually this date occurs one month after the adjustment date for the interest rate.


Periodic Payment Cap

This is a limit dollar amount that a monthly payment fluctuate up or down with an adjustment period for an ARM; where minimum payment and the interest rate change independently or each other.


Periodic Rate Cap

This is a limit interest rate can fluctuation, either up or down, during an adjustment period for an adjustable rate mortgage (ARM).


Personal Property

This is any property not considered to be real property.


PITI

An abbreviation for principal, interest, taxes, and insurance. An impounded loan includes all these elements, and is a very common loan format. Mortgage lenders require payment for all these to ensure protection for the loan.


PITI reserves

This is an amount held in reserve, following down payment plus closing costs for a mortgage loan. This reserve is equivalent to what the borrower would pay for principal, interest, taxes and insurance for a specific number of months.


Planned Unit Development ( PUD )

This is an ownership type individuals own the unit or building, however, common areas are owned jointly by the members of the development. This is not the same as a condominium, where an individual owns the airspace for a unit, however, all common areas and buildings are held in joint ownership with all members of the development.


Power Of Attorney

A legal document authorizing one person to act on another person's behalf. This document can limit the authority to specific acts or time periods, or it can grant a complete authority.


Pre-Approval

This term is used when a borrower completes a loan application with information about income, debts, and savings and has been approved by an underwriter. The pre-approval is made for a specific loan amount and most likely interest rate for the loan, and also estimates the property tax and insurance. This pre approval applies only to a specific borrower and the property involved must be approved by lending underwriters.


Prepayment

This is an amount that is used to reduce the principal balance of a mortgage loan prior to the due date.


Prepayment Penalty

This is a fee charged to a borrower who fully pays off a mortgage loan before it is due.


Pre-Qualification

This is a loan officer's opinion, in writing, of the borrower's ability to qualify for a mortgage, following the loan officer's review of the borrower's income, debt, and savings. This information may be written or verbal, and may or may not include the borrower's credit report.


Prime Rate

This is the interest rate charge by lending institutions to highly qualify, preferred customers. The prime rate is important as an index for some adjustable rate mortgages, and for lines of credit against equity. The prime rate does not affect other loan types; however, economic factors affecting the prime rate will have similar effect on a mortgage loan interest rate.


Principal

The amount of a loan or the amount that has not yet been paid. This is also the portion of a monthly loan payment used to reduce any remaining balance for the loan or mortgage.


Principal Balance

This is the outstanding dollar balance for principal amount for a mortgage. The principal balance does\ This does not include outstanding interest or any other outstanding charges.


Private Mortgage Insurance (PMI)

Private mortgage insurance company provides an insurance policy to lending institutions from loss if a borrower does not repay a loan. Lender usually requires this insurance for any loan with a loan to value ratio of 80% or more.


Promissory Note

This is a promise, in writing, to repay a specific dollar amount over a specified time period.


Public Auction

A meeting that is noted by public advertisement at specific location for the purpose of selling property in order to repay a defaulted mortgage.


Planned Unit Development (PUD)

This is a real estate project that has common property, owned and maintained using a homeowners' association or other organization that can be used by the individual owners.


Purchase Agreement

This is written contract agreement signed by the both buyer and seller that states terms and conditions for the sale of property.


Purchase Money Transaction

Using money or an equivalent monetary source to pay for a property.


Qualifying Ratios

These are mathematical calculations used to determine if an individual is a qualified mortgage loan borrower. There two ratios used: The "top" or "front" ratio calculates the borrower's monthly mortgage payment that includes principal, insurance, mortgage insurance, taxes, and other property related expenses as a % of the monthly income. The "back" or "bottom" ratio totals the cost of housing plus all other debts paid monthly.


Quitclaim Deed

This is a deed transferring interest or title in a property without a warranty.


Rate Lock

This occurs when a lender guarantees a specific interest rate for fixed amount of time with a specified cost to a borrower.


Real Estate agent

This is an individual licensed for negotiation and transactions involving the sale of real estate.


Real Estate Settlement Procedures Act ( RESPA )

This is a consumer protection law requiring lending institutions to notify a borrower, in advance, of closing costs.


Real Property

Land and anything attached to it, including all permanent structures, minerals, trees and the benefits, interest, and the inherent rights thereof.


Realtor

A real estate associate, agent, or a broker who has and active membership in an organization affiliated with the National Association of Realtors.


Recorder

A public official who maintains records of real property transactions within an area. This person is sometimes referred to as the "County Clerk" or "Registrar of Deeds."


Recording

The registration of documents in the registrar's office with details of a legal document like a mortgage note, deed, mortgage payoff, or mortgage extension. This process makes the document(s) public record.


Refinance Transaction


Paying off one loan with funds from another loan while using the same property as collateral.
Remaining Balance

This is the amount of the principal that is unpaid.


Remaining Term

This is the beginning amortization term with the number of payments applied subtracted from it.


Rent Loss Insurance

Insurance protecting a landlord loss of rental income from fire or other casualty that makes the property unavailable for occupancy or other use.


Repayment Plan

This is an agreement to repay delinquent payments.


Revolving Debt

This is a type of credit, allowing a customer to make purchases using a pre-approved line of credit; an example is a credit card. The borrower receives a bill for the amount he owes and for any accrued interest due.


Right Of First Refusal

This is a provision in an agreement requiring a property owner to grant another party the first opportunity to lease or purchase the property prior to the owner placing the property for public lease or sale.


Right Of Ingress Or Egress

This is the right to enter or exit specified property.


Right Of survivorship

This is the right of survivors, in a joint tenancy, to acquire the property interest of a deceased joint tenant.


Sale-Leaseback

A contract where the seller provides a deed for property to a buyer for financial consideration, then the buyer leases the real estate back to the seller.


Second Mortgage

A mortgage in a subordinate lien position to a first mortgage.


Secondary Market

This is a market where existing mortgages are bought and sold, as part of a pool or available mortgages.


Secured Loan

A loan that uses collateral (something of value) a security for the loan.


Security

Something of value, such a real estate used a loan collateral.


Seller Carry-Back

A contract agreement where the property owner who is selling the property assists in financing the real estate loan. This is used frequently with assumable mortgage financing.


Servicer

A company that collects mortgage interest and principal payments a borrower and manages escrow accounts for the borrower. The servicer frequently manages mortgages purchase by secondary mortgage market investors.


Servicing

The loan servicer collection of mortgage payments from a borrower with accompanying management responsibilities.


Subdivision

A residential development that involves dividing land into individual housing lots for sale or lease.


Subordinate Financing

Liens and mortgages that have a subordinate position to a first mortgage.
Survey

A map or drawing that indicates precise legal boundaries for a real estate property, the including location of easements, improvements, encroachments, rights of way and other physical structures and features.


Sweat Equity

Improvement to improvements by construction and/or remodeling for a property in the form by using labor or construction services other than cash.


Tenancy In Common

An ownership type where ownership does not pass to other owners on a title for a property upon the death of one of the owners.


Third-Party Origination

A process where a lending institution hires another company to process, originate, close, underwrite, package, or fund a group of mortgages for the secondary mortgage market.


Title

This is a legal document that contains an individual's rights for property ownership.


Title Company

This is a company specializing in examining and insuring real estate titles.


Title Insurance

Insurance protecting a lending institution (aka lender's policy) or a buyer (aka owner's policy) from losses due to ownership disputes for a property.


Title Search

A review of the title records for a property to verify the seller is the legal owner and there are no encumbrances, liens, or other claims against the property.


Transfer Of Ownership

The means for transferring ownership of a property. Lending institutions consider the following situations as a transfer of property ownership: assumption of a mortgage by an individual purchaser, the purchase of a property dependent upon a mortgage, an exchange of possession of property with a land sales contract, or any other type of land trust document.


Transfer Tax

This is a local or state tax that is paid when property title is passed 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 in the over-the-counter market.


Truth-in-Lending

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.


Two Step Mortgage

An ARM (adjustable rate mortgage) with one interest rate for a period of five to seven years, and a different interest rate for the remainder of the life of the mortgage.


Two To Four Family Property

A property that has living space, in dwelling units for 2 to 4 families, however, there is a single deed for ownership.


Trustee

An individual who has fiduciary responsibility over the control of a property for the benefit of another individual.


VA Mortgage

This is a mortgage guaranteed by the VA (Department of Veterans Affairs).

Vested

The right to use or access part of a financial fund, such as an IRA (individual retirement account). As an example: an individual who is 100% vested could withdraw the entire amount in a retirement fund, and taxes are due at the time of withdrawal.


Veterans Administration (VA)

A federal government agency that guarantees residential home mortgages for veterans of the military services. This guarantee protects lending institutions from loss and making it more desirable for lending institutions to make mortgage loans to veterans.