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Find a word or term
You may use the following mortgage terms dictionary as a tool and guide to help you and
your family learn more about how the loan process works.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
A
adjustment interval
This is a period of time between changes in either the interest rate and/or the monthly payment. The interest rate on most ARMs may change after one, three, or five years, although other adjustment intervals may be negotiated with lenders.
adjustable rate mortgage loan (ARM)
A mortgage loan that changes interest rate periodically based upon the changes in a specified index.
adjustment date
The date on which the interest rate changes for an adjustable-rate mortgage loan (ARM).
adjustment period
The period that elapses between the adjustment dates for an adjustable-rate mortgage loan (ARM).
amenity
A feature that enhances a property's attractiveness and increases the occupant's or user's satisfaction (although the feature is not essential to the property's use). Natural amenities include a desirable location near water and scenic views of the surrounding area.
amortization
A repayment method in which the amount you borrow is repaid gradually through regular monthly payments of principal and interest for a predetermined length of time. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
amortization schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.
amortization term
The amount of time required to pay off the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.
amortize
To repay a mortgage with regular payments of both principal and interest.
annual cap
The limit on the amount an adjustable rate mortgage's interest rate can change over a 12-month period. An annual cap prevents your payments from changing too dramatically, even if the factors that determine changes in an adjustable mortgage's rate rise or fall sharply during that period.
annual percentage rate (APR)
The cost of a mortgage loan stated as a yearly rate. Includes items such as interest, mortgage loan insurance, and loan origination fee (points).
application
A form, commonly referred to as a 1003 form, used to apply for a mortgage loan and to provide information regarding a prospective mortgagor and the proposed security.
application fee
Fees that are paid upon application. An application fee may frequently include charges for property appraisal and a credit report.
appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.
appraised value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.
appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
assessed value
The valuation placed on property by a public tax assessor for taxation purposes.
assessment
The process of placing a value on property for taxation purposes.
assessor
A public official who establishes the value of a property for taxation purposes.
asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc,).
assignment
The transfer of a mortgage loan from one person to another.
assumable mortgage loan
A mortgage loan that can be taken over ("assumed") by the buyer when a home is sold.
assumption
The transfer of the seller's existing mortgage loan to the buyer.
assumption clause
A provision in an assumable mortgage loan that allows a buyer to assume responsibility for the mortgage loan from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
assumption fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage loan.
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B
balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
balloon mortgage loan
A mortgage loan that has level monthly payments that will amortize it over a stated term, but provides for a lump sum payment to be due at the end of an earlier specified term.
balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage loan.
bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.
bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
before-tax income
Income before taxes are deducted.
beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
biweekly payment mortgage loan
A mortgage loan that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage loan, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.
blanket mortgage loan
The mortgage loan that is secured by a cooperative project, as opposed to the share loans on individual units within the project.
bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage loan or a deed of trust.
borrower
The individual applying for or receiving a loan or line of credit
breach
A violation of any legal obligation.
bridge loan
A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."
broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
buydown mortgage loan
A temporary buydown is a mortgage loan on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage loan. A permanent buydown reduces the interest rate over the entire life of a mortgage loan.
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C
call option
A provision in the mortgage loan that gives the mortgage loan the right to call the mortgage loan due and payable at the end of a specified period for whatever reason.
cap
A provision of an adjustable-rate mortgage loan (ARM) that limits how much the interest rate or mortgage loan payments may increase or decrease.
capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage loan, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage loan liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.
certificate of eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage loan.
certificate of reasonable value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage loan.
certificate of title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.
chain of title
The history of all of the documents that transfers title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
change frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage loan (ARM).
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing
A meeting at which the buyer finalizes a sale of a property signing the mortgage documents and paying closing costs. Also called “settlement”.
closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.
closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.
closing date
Lenders need to know when you would like to complete the final procedures your new house in which documents are executed and the sale is completed. 45-60 days is most common. You can always discuss changing this date with your lending institution.
closing statement
The final statement of costs necessary to close on a loan listing both buyer and seller fees, if applicable. This is also referred to as the HUD-1.
cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.
collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
collection
The efforts used to bring a delinquent mortgage loan current and to file the necessary notices to proceed with foreclosure when necessary.
co-borrower
An individual who enters into an agreement along with the borrower. The co-borrower is responsible if the borrower should default on the loan.
co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.
commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.
commitment letter
A formal offer by a lender stating the terms under which he or she agrees to lend money to a home buyer. Also known as a "loan commitment."
common areas
Portions of a building, land, and amenities that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. They are owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation). Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
community home improvement mortgage loan
An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.
community property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
comparables
An abbreviation for "comparable properties". Used for comparative purposes in the appraisal process. Comparables are properties similar to the property under consideration, have reasonably the same size, location, amenities, and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
compound interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
conforming loan
Generally, a mortgage loan under $240,000. Qualifying ratios and underwriting methods are standardized to a large degree with this type of loan.
construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
contract
An oral or written agreement to do/not do a certain thing.
contract of sale
The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.
convertibility clause
A provision in some adjustable-rate mortgage loans (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage loan at specified timeframes after loan origination.
convertible ARM
An adjustable-rate mortgage loan (ARM) that can be converted to a fixed-rate mortgage loan under specified conditions.
cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
corporate relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.
cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage loan (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
courier fee
Cost associated with transporting closing documents to the closing agent. This fee may also include the cost of forwarding and/or obtaining other documents necessary to complete the preparation of your mortgage documents.
covenant
A clause in a mortgage loan that obligates or restricts the borrower and that, if violated, can result in foreclosure.
credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
credit history
A record of an individual's open and fully repaid debts. A credit history helps a lender determine whether a potential borrower has a history of repaying debts in a timely manner.
credit life insurance
A type of insurance often bought by the borrower because it will pay off the mortgage debt if the borrower dies while the policy is in force.
credit limit
The maximum amount that you can borrow.
credit report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. See merged credit report.
credit repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
creditor
A person to whom money is owed.
creditor charge-offs
A term generally used in accounting that indicates the creditor does not expect to successfully collect the balance owed on an account
creditor judgments
A decision by a court of law relative to an action or suit.
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D debt
An amount owed to another.
deed
The legal document conveying title to a property.
deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.
deed of trust
The document used in some states instead of a mortgage loan in which the title is conveyed to a trustee.
default
Failure to make mortgage loan payments on a timely basis or to comply with other requirements of a mortgage loan.
delinquency
Failure to make mortgage loan payments when mortgage loan payments are due.
deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
depreciation
A decline in the value of property; the opposite of appreciation.
down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage loan.
due-on-sale provision
A provision in a mortgage loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage loan.
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E
earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
easement
A right of way giving persons other than the owner access to or over a property.
effective age
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
encumbrance
Anything that affects or limits the fee simple title to a property such as mortgage loans, leases, easements, or restrictions.
endorser
A person who signs ownership interest over to another party. Contrast with co-maker.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage loan.
escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
escrow account
The account in which a mortgage loan servicer holds the borrower's escrow payments prior to paying property expenses.
escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
escrow collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage loan insurance, and hazard insurance.
escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage loan insurance, and other property expenses as they become due.
escrow payment
The portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage loan insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.
estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
eviction
The lawful expulsion of an occupant from real property.
examination of title
The report on the title of a property from the public records or an abstract of the title.
exclusive listing
A written contract between a property owner and a real estate broker whereby the owner promises to pay a fee or commission to the broker if certain real property of the owner is sold during a stated period, regardless of whether the broker is or is not the cause of the sale.
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F
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.
fair market value
The highest price that a buyer is willing to pay, but not compelled to buy, and the lowest price that a seller is willing to accept, but not compelled to sell.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money, plan, or construct housing.
fee simple
The greatest possible interest a person can have in real estate.
FHA mortgage loan
A mortgage loan that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage loan.
finder's fee
A fee or commission paid to a mortgage loan broker for finding a mortgage loan for a prospective borrower.
first mortgage loan
A mortgage loan that is the primary lien against a property.
fixed installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
fixed-rate mortgage loan (FRM)
A mortgage loan in which the interest rate does not change during the entire term of the loan.
flood certification fee
This is a fee to obtain documentation that indicates whether or not a property is in a federally-designated flood zone, and whether or not flood insurance is required for that property.
flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
foreclosure
The legal process by which a borrower in default under a mortgage loan is deprived of his or her interest in the mortgage loan property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage loan debt.
forfeiture
The loss of money, property, rights, or privileges due to a breach of legal obligation.
full disclosure
A legal requirement that says a person selling a home must inform a potential buyer of everything they know about the home's physical and economic condition.
fully amortized ARM
An adjustable-rate mortgage loan (ARM) with a monthly payment that is sufficient to amortize the remaining balance at the interest accrual rate over the amortization term.
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G
gift letter
The form stating that a relative is giving you money to help you buy a home, and that they will not ask you to it pay back. The letter also provides proof, by referring to bank statements and other records, that the relative does in fact, have enough money to cover the amount of the gift, and that the money has been transferred to your possession.
good faith estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement.
grace period
The period of time past the due date for a payment during which the payment may be made and not considered delinquent.
grantee
The person to whom an interest in real property is conveyed, generally the seller.
grantor
The person conveying an interest in real property, generally the buyer.
gross income
For qualifying purposes, the income of the borrower before taxes or expenses are deducted.
guarantee mortgage
A mortgage that is guaranteed by a third party.
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H
hazard insurance
Insurance protecting against loss to real estate caused by fire, natural causes, vandalism, etc. Coverage depends upon the terms of the policy.
home equity conversion mortgage
A special type of mortgage 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. Unlike traditional home equity loans, a borrower does not qualify based on income, but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.
home inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
homeowners' association
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
homeowner's insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
homeowner's warranty
A type of insurance that covers repairs to specified parts of a house for a specific period. It is provided by the builder or property seller as a condition of the sale.
housing expense ratio
The percentage of gross monthly income that goes toward paying housing expenses.
HUD
The U.S. Department of Housing and Urban Development.
HUD-1
A standard form, which itemizes the closing costs associated with the purchase or the refinance of a one-to-four family residential property.
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I
index
A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Some commonly used indexes include the 1-Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
in-file credit report
An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.
inflation
An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.
initial interest rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM).
installment
The regular periodic payment that a borrower agrees to make to a lender.
installment loan
Borrowed money that is repaid in equal payments, known as installments. An auto loan is often paid for as an installment loan.
insurance
A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.
interest
The amount of money a lender charges you to borrow money. The interest you pay is a percentage of your total loan and is paid over time.
interest accrual rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.
interest adjustment or prepaid interest
An estimated amount of interest due at closing, usually from the date of closing to the end of the month.
interest rate
The periodic charge, expressed as a percentage, for use of credit.
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 that is not occupied by the owner.
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J
joint tenancy
A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.
jumbo loan
Also called a nonconforming loan. Terms and underwriting requirements may vary from conforming loans.
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K
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L
late payment fee
A fee charged for failing to submit the minimum monthly payment by its due date.
lender
A financial institution, like a bank, that loans you money and expects you to pay the money back to them in a stated period, usually with interest.
lien
An encumbrance against property for money due, either voluntary or involuntary.
lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.
loan application
The formal document you fill out when you approach a lender to borrow money. It includes your name and personal information, the amount of money and other terms of the loan you need, as well as a detailed description of the purpose of the loan.
loan term
The total amount of time you are given by a lender to pay off your loan. Loan terms vary, but are generally set at 15 or 30 years.
loan to value ratio (LTV)
The ratio of the amount of your loan to the appraised value of the home. The LTV will affect programs available to the borrower. Generally, the lower the LTV, the more favorable the terms of the programs offered by lenders.
lock-in
A written agreement guaranteeing the home buyer a specified interest rate providing the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
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M
margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period. A representative margin would be 2.75%.
maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
maturity date
The scheduled date for your final payment on a loan. After making the payment on a loan's maturity date, you assume complete ownership of your home from the lender.
maximum financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.
minimum payment
The minimum amount that you must pay (usually monthly) on your account. In some plans, the minimum payment may be 'interest only'. In other plans, the minimum payment may include principal and interest.
monthly housing allowance
The percentage of a person's income they can comfortably use each month to pay for where they live-with enough left over to spend on food, clothing, and other luxuries. This percentage is usually 28% of your total income.
monthly periodic rate
The most common interest rate factor used to calculate the interest charges on a monthly basis. The factor is computed by dividing the yearly rate by 12.
mortgage
The legal document outlining your responsibilities as a borrower, including the amount of the loan you have taken and the details and schedule of your re-payment. It states that if you do not make payments on your loan in a timely fashion, you may lose your right to ownership of the home.
mortgage banker
A company that originates mortgages. They loan you their funds and close the loan in their name, then resell the loan in the secondary mortgage market.
mortgage broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services. As do mortgage bankers, they take a loan application and process the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L's, banks, or investment bankers.
mortgage insurance premium
The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
mortgage life insurance
A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.
mortgage loan
A legal document that pledges a property to the lender as security for payment of a debt.
mortgage loan disability insurance
A disability insurance policy which will pay the monthly mortgage loan payment in the event of a covered disability of an insured borrower for a specified period of time.
mortgage loan insurance (MI)
Insurance written by an independent mortgage loan insurance company protecting the mortgage loan lender against loss incurred by a mortgage loan default. Usually required for loans with an LTV of 80.01% or higher.
mortgage loan
The person or company who receives the mortgage loan as a pledge for repayment of the loan.
mortgagor
The mortgage loan borrower who gives the mortgage loan as a pledge to repay.
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N
negative amortization
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The portion of the payment, which should be paid, is added to the remaining balance owed. The balance owed is added to the remaining balance to create "negative" amortization.
new loan escrow
A fee charged by the escrow company to carry out the additional procedures necessary when a new loan is created by a lender in connection with a purchase.
no cash-out refinance
A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).
no doc loan
A loan requiring no documentation of income. This type of loan is ideal for self-employed individuals with good credit.
non-conforming loan
Also called a jumbo loan. Non-conforming loans usually incur a rate and origination fee premium.
note
A written agreement containing a promise of the signer to pay to a named person, order, or bearer a definite sum of money at a specified date or on demand.
notice of default
A formal written notice to a borrower that default has occurred and that legal action may be taken.
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O
obligations
The things you have to pay for consistently each month, excluding housing costs. Obligations include things like car loans, credit card bills, student loans, and alimony or child support.
original principal balance
The total amount of principal owed on a mortgage before any payments are made.
origination
A loan processing fee charged by the lender for originating a new loan (usually 1% of the loan amount, or one "point").
origination fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.
owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
owner of record
The actual owner of a property, according to public records.
owner's title policy
An insurance premium charged by the title company to insure the buyer that the title is free from defects up to the date the conveying instrument is recorded. The seller frequently pays this premium.
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P
parcel
A piece of land or property under one ownership. Parcels are created when a single large property is sub-divided into many smaller pieces of property.
payment change date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date.
payoff penalty (prepayment penalty)
A charge imposed by a mortgage loan lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
personal property
Any property that is not real property.
Planned Unit Developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.
PITI
Principal, interest, taxes and insurance--the components of a monthly mortgage loan payment.
points
Charges levied by the mortgage loan lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.
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.
pre-approval
A way you can establish your ability to get a home loan worth a certain amount of money, even before you have found the home you want to buy.
prepaid interest
The amount of interest to cover the period from close of escrow until the beginning of the first payment.
prepaids
Expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
prepayment penalty
A charge imposed by a mortgage loan lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
pre-qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.
prime interest rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
principal
Amount of debt, not including interest. The face value of a note or mortgage loan.
private mortgage loan insurance (PMI)
Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults.
processing fee
A fee incurred for the preparation of a mortgage loan application and for the preparation of supporting documents for underwriting.
punch list
A written inventory of things that need to be done to a home in order to meet the requirements of a sales contract.
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Q
qualifying ratios
The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.
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R
rate cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
rate improvement mortgage
A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.
rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
rebate
Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points".
real estate agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
real property
Land and property that includes anything of a permanent nature such as structures, trees, and minerals.
recording fees
Fees charged by the County Recorder's Office for recordation of Deed, Mortgage or Deed of Trust, and, at times, additional documents requiring public notice.
refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.
remaining balance
The amount of principal that has not yet been repaid.
remaining term
The original amortization term minus the number of payments that have been applied.
residential mortgage loan credit report (RMCR)
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.
right of first refusal
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
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S
second mortgage
A mortgage that has a position subordinate to the first mortgage.
secured loan
A loan that is backed by collateral.
security
The property that will be pledged as collateral for a loan.
security interest
An interest that a lender takes in the borrower's property to assure repayment of a debt.
seller carry back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage loan.
subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.
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T
tax liens
A lien against real estate for unpaid taxes.
tax search
A part of a title search which determines if there are any unpaid taxes or assessments which may be a lien against the property being searched
tenants-in-common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.
term
The period of time between the beginning date of the legal documents and the date the entire balance of the loan is due.
title
The evidence one has of right to possession of land.
title company
A company that specializes in examining and insuring titles to real estate.
title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.
title search
An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.
total debt ratio
Monthly debt and housing payments divided by gross monthly income.
trade equity
Equity that results from a purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased.
transaction fee
A fee charged each time you draw on your credit line.
transfer of ownership
Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.
Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
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U
underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
underwriting fee
The cost to cover the evaluation of a loan application to determine the risk involved for the lender.
unsecured loan
A loan that is not backed by collateral.
up-front costs
The total amount of cash you need to pay when you buy a home, minus the amount of your loan. Up front costs include your down payment, any closing fees you must pay such as broker's commissions, insurance charges, and the discount points you can use to lower your overall interest rate.
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V
variable rate
An interest rate that changes periodically in relation to a specific financial index. Payments may increase or decrease accordingly due to changes in the index. Adjustments are usually made on a quarterly basis.
Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.
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W
wage garnishments
A notice to an employer that a portion of an employee's wages must be applied to a debt owed by said employee.
warehouse
A fee charged by the lender to cover the expense incurred between funding and the sale of the loan to the ultimate investor.
wraparound mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the borrower. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.
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X - Y
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Z
zoning
The way cities and towns define how areas within their borders are to be used as real property. Zoning determines which areas of a city or town can contain stores and other businesses, which should be used as residential areas, and which can mix both types of property.
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