Adjustable Rate - An interest rate that changes periodically in relation to a defined index; like the Consumer Price Index. Payments may increase or decrease accordingly.
Adjustable Rate Mortgage (ARM) - The interest rate changes with market conditions on this real property loan on pre-determined dates.
Agent - A person acting on behalf of another, called the principal or client.
Amortization - A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. From the Latin "amorte" to kill off. Generally this loan has a zero balance at the end of the term.
Annual Membership - An amount that may be charged annually for having a line of credit available in what is termed an open mortgage, whether or not you use the line. This charge is also referred to as a "participation fee".
Annual Percentage Rate (APR) - The total credit cost on a yearly basis, expressed as a percentage. Required by the Federal Truth in Lending Act, Regulation Z, it includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, or credit report.
Application - A statement of personal and financial information which is required to determine your ability to repay a loan.
Application Fee - An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50), and is paid upfront.
Appraisal - An independent, expert judgment or estimate of the quality or value of real estate, as of a given date. Required by most lenders to insure the collateral is adequate to make the loan.
Assessed Value - The public tax assessor's valuation placed upon property that is the basis for taxes.
Assumption of Mortgage - Assuming an existing mortgage, and the agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the original borrower may remain secondarily liable for loan payments.
Automated Underwriting - A home mortgage computerized method of reviewing applications for loan approval.
Balloon Payment - A lump sum payment for the unpaid balance of the loan either at the end of the loan, or at agreed upon dates.
Bill of Sale - An instrument which transfers title of personal property such as appliances or drapes. Real property is transferred using a deed.
Bridge Loan - A loan which enables buyers to get financing to make a down payment and pay closing costs on a new home, before finalizing the sale of the home they currently own.
CC& R's - Covenants, conditions and restrictions. A document that defines allowable neighborhood use, requirements and restrictions of a property.
Cap - Used on an adjustable rate mortgage, it is the maximum allowable increase, for either payment or interest rate, for a specified amount of time on the loan.
Cash Out - Refinancing your present mortgage and receiving money back.
Ceiling - The maximum allowable increase in interest rate over the life of the loan, of an adjustable rate mortgage.
Certificate of Reasonable Value (CRV) - Required for a VA guaranteed mortgage, a document that establishes the maximum value and loan amount for a VA mortgage, on a particular property.
Certificate of Title - A document signed by an attorney or title examiner, stating that the property has a good, marketable, and insurable title.
Closing - The conclusion of the financing process when the homebuyer and lender sign the security-agreement note for the mortgage loan, stating all the terms and conditions of the loan have been met, and the funds for the loan are turned over to the homebuyer's closing agent.
Closing Agent - Usually a title agency representative or attorney who oversee the closing and witnesses the signing of the closing documents.
Closing Costs -Any fees paid by the buyers or sellers during the sale of the property. It normally includes an origination fee, discount points, title insurance, attorney's fees, survey, and any items requiring prepayment, such as taxes and insurance.
Closing Statement (Settlement) - The accounting of financial adjustments between buyer and seller as of the day of closing a sale, to determine the amount of money which must be paid to fulfill the terms of the sale.
Commission - Payment to a real estate salesperson for services performed.
Commitment Letter - A written pledge, by the lender representing they will make a loan to a mortgage applicant, usually under certain stated conditions.
Condominium - A form of real property ownership where the owner receives title to a specific unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose walls, floors and ceilings (interior surfaces) serve as its boundaries.
Conforming Loan - Generally, a mortgage loan which is made to a qualified buyer on a property whose condition meets required standards.
Contingency - A condition that must be satisfied before a contract is binding. An example is a sales agreement, contingent upon the buyer obtaining financing.
Contract of Sale - The written agreement between the seller and buyer on the purchase price, terms, and conditions, necessary for both parties to conclude the sale.
Conventional Loan - Any mortgage not insured or guaranteed by a Federal government agency such as FHA, or Farmers Home Administration.
Credit Limit - The maximum amount the lender will give the borrower.
Credit Report - A report issued by an independent agency which demonstrates the borrower's financial character, and contains certain information concerning a mortgage applicant's credit history and credit standing.
Debt Service - The total amount of monthly payments for credit card, auto, mortgage or other debt a borrower must pay.
Debt-to-Income Ratio - A formula used by lenders to determine the capacity of the buyer to make the payments on the loan amount, for which they may qualify. Guidelines vary depending on the loan program.
Deed - The written document which transfers or conveys title to real property from one owner to another.
Deed of Trust - Similar to a mortgage, it is a security instrument used when real property is given as security for a debt. In a deed of trust state, there are three parties to the instrument; a neutral party known as the trustee, the borrower, and the lender (or beneficiary).
Discount Points (or Points) - The prepayment of interest to give the lender their desired rate of return which can maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $200,000 mortgage would equal $4,000). Because it is a financing cost it is based on the loan amount, not the purchase price.
Down Payment - The difference between the purchase price and the amount financed. Most loan programs require the down payment to be paid from the buyer's own funds. Gifts are sometimes acceptable, but must be disclosed to the lender.
Due on Sale - A clause in a mortgage agreement requiring the loan be paid off, if there is a transfer of ownership on the property.
Earnest Money - The consideration required to be given by the purchaser with a written offer as evidence of good faith.
Effective Interest Rate - The cost of credit on an annual basis expressed as a percentage. Includes up-front costs paid to obtain the loan. Usually a higher amount than the interest rate stipulated in the mortgage note. Useful in apples to apples comparison in loan programs with different rates and costs.
Encumbrance - A claim against a property by another party, which usually limits full title, and can affect the ability to transfer ownership of the property.
Equity - The difference between the fair market value (appraised value) of a home and the owner's outstanding mortgage balance. It is the interest or value which an owner has in real estate, over and above the debts against it. (Sales Price - Mortgage Balance = Equity).
Escrow - A procedure in which a neutral third party acts as a stakeholder for both the buyer and the seller, carrying out both parties' instructions. The escrow agent is responsible for handling all of the paperwork and distribution of funds.
Escrow Account - A holding account the lender uses to pay for the borrower's taxes, other periodic debts against the property, homeowner's insurance and, if applicable, mortgage insurance. It is collected monthly to pay annual or semi-annual costs.
Federal National Mortgage Association (FNMA) - Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It buys and sells residential mortgages insured by FHA, guaranteed by the VA, or conventional home mortgages.
Fee Simple - The greatest interest available in real estate. An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance.
FHA Loan - A program administered by the Department of Housing and Urban Development (HUD). More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses it may incur due to the borrowers default.
FICO Score - A numerical rating developed and maintained by Fair Issac and Company that is an indicator of a borrower's creditworthiness based on a number of criteria, and is the basis upon which many lenders will decide to loan money.
First Mortgage - A mortgage which is in first lien position on a property Because it is the oldest, it takes priority over most other liens, (which are financial encumbrances).
Fixture - What was formerly personal property, which is now permanently affixed to real property and is included with the property when it is sold.
Fixed Rate - An interest rate which remains constant for the term of the loan. Payments as well are generally fixed at one amount.
Float the Rate - While applying for a loan, this term is used when a mortgage applicant chooses not to secure a rate lock. The borrower allows the interest rate to fluctuate until they decide to lock the interest rate to a known percentage, usually no later than five days prior to closing.
Front-end Ratio - Compares your proposed monthly house payment (PITI) to your total household gross monthly income. Also known as the housing expense-to-income ratio.
Funding Fee - The amount VA charges on mortgages to cover administrative costs.
Good Faith Estimate - A written estimate of closing costs which a lender must provide the borrower within three days of submitting an application.
Grace Period - A period of time when a loan payment may be paid after its due date, and not incur a late penalty. Such late payments may be reported, and impact your credit report.
Graduated Payment Mortgage - A mortgage with monthly payments that start at a low level and increase at a predetermined rate, this kind of loan can help a buyer qualify for a loan mortgage.
Gross Income - The income of the borrower before taxes or expenses are deducted, for qualifying purposes.
Hazard Insurance - A binding contract purchaser enters into with an insurer, to compensate the insured for loss of property, due to hazards, (fire, hail damage, windstorms), for a premium.
Home Equity Line of Credit - The maximum amount of a fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. It is the ability to borrow funds at the time and in the amount, up to a maximum credit limit for which they have qualified. Repayment is secured by the equity in borrowers home. Often used for home improvements, major purchases or expenses, and debt consolidation.
Home Equity Loan - The loan used on a home equity line of credit.
Home Inspection Report - An inspector's report on a property's overall condition. The report generally includes an evaluation of both the structure and mechanical systems.
Home Warranty Plan - Protects against failure of mechanical systems within the property. Usually includes electrical, plumbing, installed appliances, and heating systems.
HUD I Settlement Statement - A standard form utilized at loan closing to itemize the costs associated with purchasing the home.
Index - A commonly used economic indication, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Consumer Price Index or the average rate of a one year Government Treasury Security.
Interest Rate - The cost of using money expressed as a percentage.
Interim Interest - The interest that accrues, on a daily basis, from the day of closing until the end of the month.
Joint Tenancy - An unusual type of ownership of equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent's interest in the property, known as right of survivorship.
Jumbo Loan - Mortgage loans for expensive homes. Terms and underwriting requirements may vary from conforming loans, and loan limits are adjusted frequently.
Lien - An encumbrance or legal hold or claim on property, as security for a debt or charge.
Listing Contract - An agreement that serves as an employment agreement, between a home owner (as principal) and a licensed real estate broker (as agent). The broker is contracted to market the real estate within a given time, for which service the owner agrees to pay a commission. Also, "listing agreement."
Loan Commitment - A written promise from a lender to make a loan for a specified amount on specific terms.
Loan Conditions - These are terms which a lender agrees to make a loan. It includes the interest rate, length of loan agreement, and requirements, the borrower must meet prior to closing.
Loan Payment Reserves - A requirement of many loan programs that requires, in addition to funds for the down payment and purchase-related costs, enough money in the buyers reserves to cover one or two months of mortgage payments after your closing.
Loan to Value Ratio (LTV) - The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value. For example, a sales price of $100,000 with a mortgage loan of $80,000, is a loan to value ratio of 80%. Loans with an LTV over 80% may require Private Mortgage Insurance.
Lock or Lock In - A commitment from a lender which gives the borrower a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between loan application, loan approval, closing and receiving borrowed funds.
Margin - An amount, which is added to the index, or measurement to determine the interest rate for adjustable rate mortgages.
Market Value - The highest price which a ready, willing and able buyer, but not forced to buy, would pay, and the lowest price a seller, knowledgeable, ready, willing and able but not compelled to sell, would accept. Basis for "listing price'' or "asking price."
Minimum Payment - The minimum amount that must be paid, usually monthly, on a home equity loan or line of credit. Some plans, require the minimum payment to be "interest only," (simple interest). Other plans, are structured so minimum payments may include principal and interest.
Mortgage - An encumbrance lien or claim against real property given by the buyer, often to the lender as security for money borrowed.
Mortgage Banker - Originates mortgage loans, and sells the loan after closing.
Mortgage Broker - Takes loan applications and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money. Works on behalf of several investors, such as mortgage bankers, savings and loans, banks, or investment bankers.
Mortgage Insurance (MIP or PMI) - Insurance purchased by the borrower to insure the lender or government against loss should the buyer default. MIP, Mortgage Insurance Premium, is paid on government-insured loans (FHA loans) regardless of the LTV (loan-to-value). Should a government-insured loan be paid off in advance of maturity, the borrower may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When the buyer has accumulated 20% of a home's value as equity, the lender may waive PMI at the owners request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.
Mortgage Life Insurance - A life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically paid off by insurance proceeds.
Mortgage Loan - A loan which utilizes real estate as security or collateral. The mortgage or Deed of Trust is the agreement to pledge a home or other real estate as security.
Mortgage Note - A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. Also, "deed of trust note."
Mortgagee - The lender in a mortgage loan transaction, that supplies the necessary funds, and encumbers the property as collateral.
Mortgagor - The borrower in a mortgage loan transaction.
Negative Amortization - Occurs when the payment made is insufficient to fund complete repayment of the loan at its termination. The portion of the payment which is not paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.
Note - The agreement or IOU which states the home mortgage amount to be borrowed and the terms and conditions of the loan. It also includes a complete description the loan repayment terms and time frame.
Origination Fee - A fee or charge for work involved in preparing, evaluating, and submitting a proposed mortgage loan. The fee is limited to 1 percent of FHA and VA loans. It may be larger with conventional and internet financing.
PITI - Principal, interest, taxes and insurance, typically included in a monthly mortgage payment.
Planned Unit Development (PUD) - A zoning designation for property planned and developed at the same or slightly greater overall density than conventional development. Improvements can be clustered between open, common areas. Uses may be industrial, commercial, or residential.
Point - A prepayment of interest that equals to 1 percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a rate required by investors or lenders.
Pre-approval - A commitment from a lender, subject to property appraisal and other stated conditions. It confirms how much home money the lender will loan a borrower.
Prepaids - That portion of your loan closing costs which is collected at closing to cover taxes, interest and insurance for a prescribed period of time
Prepayment Penalty - A charge paid to a lending institution for paying a loan prior to the scheduled maturity date. Not allowed in some states, or with FHA or VA loans.
Principal - This word can mean; either party to a contract, the client who appoints an agent to represent them. Iit also means the amount of money loaned upon which interest will be charged.
Private Mortgage Insurance (PMI) - Insurance written protecting the lender against loss if the borrower defaults on the mortgage.
Prorate - Allocation between seller and buyer of their proportionate share of obligations paid or due. Examples include proration on real property taxes, fire insurance, or condominium fees.
Purchase Agreement - A written document used to define the terms and conditions a purchaser agrees to buy and the seller agrees to sell a certain parcel of property. Additional terms include; sales contract, earnest money contract, or agreement for sale.
Qualifying Ratios - A defining percentage lenders use to decide the amount they will loan. It compares a borrower's debts and gross monthly income.
Rate Cap - The limit an interest rate may change on an ARM at each adjustment and over the life of the loan.
Rate Lock - An agreement made by the borrower and lender to protect the interest rate, points or terms of the loan while it is processed.
REALTOR® - A licensed real estate agent affiliated with the National Association of REALTORS®.
Regulation Z - Rules issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act, that govern consumer lending.
Right to Rescission - The legal right to void or cancel a contract. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to home equity loans, or other contracts.
Security Interest - An interest a lender takes in the borrower's property when it is used as collateral to assure repayment of a debt.
Servicing a Loan - The ongoing process of collecting monthly mortgage payments It includes accounting for and payment of yearly tax and homeowner's insurance bills.
Sub-prime Loan - Home financing programs that accommodate borrowers with special qualifying factors, often used by borrowers with poor credit histories.
Survey - Work done by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. It is often required by the lender, termed "as-built" to assure a building is actually sited on the land according to its legal description and refinancing set backs.
Tenancy in Common - A joint ownership of property by two or more persons with no right of survivorship.
Title - The written documents that prove the right of ownership of a specific parcel of property.
Title Insurance - Protects lenders or homeowners against financial loss resulting from legal defects in the title.
Title Search or Examination - A check of the title records, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments or other claims, that would diminish the rights of ownership.
Transaction Fee - A fee which can be charged each time a draw on a home equity credit line is made. It can also refer to a charge made by a brokerage in the sale of a property.
Transfer tax - State or local tax, where applicable, required by law when title passes from one owner to another.
Truth-in-Lending Statement - This statement tells purchasers the costs of financing their loan expressed as the annual percentage rate, APR. Often mistakenly confused with interest rate, which is used to determine monthly principal and interest payments.
Underwriting - Insures the lender is making a good loan. The process of verifying data on a borrower and property value, and approving a loan.
Variable Rate - An interest rate that changes periodically in an adjustable rate loan. Payments may increase or decrease accordingly.
VA Loan - A loan for which the Veteran's Administration insures the lender against losses the lender may incur, due to default, from the borrower. Available only to veterans possessing a Certificate of Eligibility. (More appropriately termed "VA Insured Loan.")