Glossary

Alpahbetical Index
(click on a letter)

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

Acceleration Clause: A common provision of a mortgage or note providing the holder with the right to demand that the entire outstanding balance is immediately due and usually payable in the event of default.

Adjustable Rate Mortgage: A loan that has a fluctuating interest rate and monthly payment. ARMs start off with a fixed interest rate and monthly payment, but then adjust to reflect changes in the market interest rate. A 1-year ARM, for example, will have a fixed interest rate for 1 year and then will adjust on the second year, and continue to adjust annually over the life of the loan. You can also find ARMs that adjust semi-annually and monthly.

Adjustment Period: How often an adjustable rate mortgage's interest rate changes. While most adjustment rate mortgages (ARMs) change annually, others fluctuate monthly or semi-annually. Usually, the longer the adjustment period, the higher the initial fixed interest rate (called a teaser rate) will be.

Amortization: Repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.

APR(annual percentage rate): A measurement used to compare different loans offered by competing lenders, which takes into account both the interest rate and closing fees. Unlike an interest rate, an APR gives you a bigger picture when shopping for the best deal on a loan. An APR lets you see the total cost of a mortgage, including closing fees and lender points over the life of a loan - not just the interest due. Even though lenders are required by law to show a loan's APR, they don't all use the same fees in their calculation, skewing the comparison. So always check to make sure that the APRs you are comparing include similar fees.

Appraisal

A premiums ubject property? For example, if a house of the same size on the same street and in the same condition as the subject property recently sold for $200,000, but this 'comparable' had a triple garage and a finished basement and the 'subject' does not; the appraiser calculates the market value of these features (say, $12,000 in total) and deducts this amount from $200,000, giving an 'adjusted value' of $188,000. This is usually done with at least three 'comparable s' and either averaged or the middle ('median') value used. A supporting measurement of value used by many appraisers is the "depreciated cost" approach, whereby the land value is estimated and added to an estimate of the depreciated building value. Where there are few comparables available, relatively more weight might be given to this method.

ARM(link)

When it comes to ARMs there's a basic rule to remember...the longer you ask the lender to charge you a specific rate, the more expensive the loan.

Advanced Lock: Brokers can select a rate and lock it in advance of submitting the loan package. This ensures that the borrower gets the rate they want. Locks are good for 12, 30 and 45 days.

Application: A paper or online form used to apply for a loan. When you fill out an application and submit it to a broker or lender, you have taken the first step in applying for a loan. Even if you don't have a property in mind, you can still apply and get a preapproval on a loan. The application, also referred to as a 1003, asks for personal and financial information, such as your current bills, present salary and bank account balances.

Asset: Anything of value that can be converted into cash. Assets come in all sorts of shapes and sizes, including, land, investments and personal property. Even an antique pearl necklace is an asset - it's anything that can be turned into cash. If an asset can easily convert into cash, like stocks, it is called a liquid asset. A home is not liquid since it can take a while to sell.

Assumption: A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.

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Balloon Mortgage(link)
Bankruptcy: A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts.

Balloon Payment: The final lump-sum payment to pay off a balloon mortgage's balance. The balance on a balloon mortgage is due in full typically between 5 to 7 years, after the day it starts. This last payment is a heap of money, and if you can't pay it off, you do have the option to sell or refinance, even though interest rates might be high. If you don't take any of these options, you're risking foreclosure. Some balloon mortgages do allow you to extend the loan in exchange for a higher rate.

Blanket Mortgage: A loan covering more than one piece of property Land developers commonly use blanket mortgages when they buy a plot of land and divide it into many separate lots. They spread the mortgage across the entire property rather than over each individual lot.

Buy-Down Mortgage: A mortgage loan with a below-market rate for a period of time.

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Cap: The limit on how much the interest rate or monthly payment on an adjustable rate mortgage (ARM) can go up or down. Most ARMs have two types of interest rate caps: (1) lifetime caps, which are required by law, that limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6 percentage points over or under the initial rate and (2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. Caps on monthly payments are rare since they can cause negative amortization, a situation where your mortgage balance increases despite regular monthly payments.

Cash Out: Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out. Cash-out loans may not be available for all types of property.

CLTV: Combined Loan to Value. A ratio developed by adding the first mortgage loan amount and the second mortgage loan amount together then dividing by the appraised value or sales price whichever is less. Investors have established maximum CLTV ratios on loan programs.

Closing cost: Fees that must be paid on (or before) the closing date by the buyer and/or seller in addition to the down payment. These fees, which average 2-5% of a loan's amount, are paid on (or before) the closing date. Closing costs normally vary based on a combination of three factors - the lender, the property's location and the type of mortgage you choose. It's best to have a good idea of all the costs early on: ask your closing agent for a pre-closing HUD-1 document, which gives a detailed list of the expected closing costs.

Closing Statement: A document that gives a breakdown of the buyer's and seller's closing costs. A closing statement gives you the final record of the fees paid at closing. In some states, you receive the closing statement on or after the closing date. If your property closes in escrow, you usually receive the final closing statement in the mail - normally within 24 hours after the deed of trust is recorded. The lender, broker, escrow agent or attorney can prepare the closing statement. A closing statement is also called a settlement statement or HUD-1.

COFI

Collateral: Assets (such as your home) pledged as security for a debt.

Conditions: Refers to missing information/documentation that may be required to complete the underwriting, or before the documents can be drawn, or before the loan can fund.

Condominium (Condo): A building or housing development where each person owns his or her unit and shares ownership of the common areas. Owning a condo is very similar to owning a house, you have a separate deed and mortgage, and pay property taxes on your unit. The major differences are: (1) you have a joint ownership of the common areas, including the land itself, staircases and swimming pool and (2) you have to pay monthly dues to cover maintenance and repairs for the facilities that you share with everyone else, such as garbage collection, lighting in the hallways and landscaping. Condos also follow a set of strict rules called Covenants, Conditions and Restrictions, which specify everything from how maintenance is handled to what color curtains you can or cannot hang on your windows. It's a smart idea to read them before buying a condo. Also, ask for recent reports that outline future plans for the condo, which might impact your dues.

Conforming(link)

Contingency: A condition which must be satisfied before a contract is legally binding.

Contract of Sale: The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Conventional Mortgage: Any loan granted by a non-governmental (usually commercial) lender. Most loans are conventional, except for those insured by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

Convertible ARMs
A type of ARM loan with the option to convert to a fixed-rate loan during a given time period.

Credit score: Sometimes referred to as a FICO, Beacon or Empirica. A specific type of credit score that evaluates and considers only the information in a borrower's file at a credit reporting agency. As an index, the score reflects the relative risk of serious delinquency, default, foreclosure, or bankruptcy associated with a Borrower.

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Deed: Legal document by which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.

Deed of Trust: A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full.

Default: When a home owner fails to make payments on the mortgage. In some rare cases, due to financial trouble, a borrower can't make the monthly mortgage payments. To keep from losing the property, the borrower can negotiate with the lender for a more flexible pay back plan until he or she can get back on track. If after about 3 1/2 months the borrower is still in default, the lender will have no choice but to start the foreclose process and sell the home to repay the loan.

Delinquency: Failure to make payments as agreed in the loan agreement.

Depreciation: A decrease in a property's value. Your home can lose value over time due to any number of reasons, such as poor condition, an over supply of homes in the market, or a declining neighborhood. If you buy a house for $100,000 and sell it two years later for $90,000, your home has depreciated by $10,000. Unless it's a rental property, you don't get any tax deductions on this loss.

Discount Point: A fee added to your closing costs in exchange for a lower interest rate on a loan. The basic idea of discount points is to pay a little up-front in order to save big over the life of the loan. One discount point equals one percent of the loan amount. So, if you pay 2 discount points on a $200,000 loan you would pay $4,000 up-front at closing. Each discount point you pay will typically lower your loan's rate by .25%. Discount points are a good idea if you plan to hold onto your home for a long period of time. This allows you to offset the costs of paying for the points. Often sellers will pay some of the discount points as a way to make their homes more attractive to buyers.

Down Payment: The amount of your home's purchase price you need to supply up front in cash to get your loan. For conventional loans, you should strive for a down payment that's at least 20% of your home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home's purchase price. (Note, however, that FHA and VA loans have different policies regarding insurance.)

Due-on-sale Clause: Part of a loan agreement that gives a lender the right to demand repayment of a loan when the property is sold. Lenders include a due-on-sale clause in a mortgage to prevent buyers from taking over a seller's existing mortgage. Lenders don't benefit when this happens because the existing mortgage usually has a lower interest rate than current market rates. A due-on-sale clause is a type of acceleration clause.

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Earnest Money: Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.

Effective Rate/Cost: The total cost of a loan over the number of years that you expect to hold onto it. The effective rate takes into account the fact that most people don't stay in a home for the full length of a loan's term, which is usually 30 years. The effective rate gives you the chance to compare loans based on the actual time you plan to keep a home.

EZDoc: Trademark term for a Residential Funding loan program which does not require written verification of income. The income is stated on the loan application and there is no back up documentation to verify the information. EZDoc is the same as a Limited Doc or Stated Income.

Equity: The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.

Equity Line of Credit: A combination of a line of credit and equity loan. A maximum loan amount is established based on credit and equity. A mortgage (deed of trust) is recorded against the potential borrower's property for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the amount of the mortgage.

Escrow: A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds.

Escrow Agent/Officer: A escrow agent oversees escrow, the process that some states use to complete a home's sale or purchase. The buyer and seller sign an agreement that gives the escrow agent a detailed list of instructions on how escrow should be carried out, which includes how much money to collect, what documents to prepare and when to order a title search. The escrow agent is a neutral party who fairly represents both the seller and buyer. The escrow agent can be a lender, title company or real estate attorney.

Escrow Account: A neutral account that holds a sum of money, usually until a specific transaction is completed . Lenders often set up a type of escrow account, called an impound account, for you to prepay certain recurring costs: your first 6 months of property taxes, your first 2 months of hazard insurance and your first 2 months of mortgage insurance, if required. You then pay these bills monthly through this account. Some lenders let you waive the account, but may tack on additional points to your closing costs if you choose to not have one.

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Federal Deposit Insurance Corporation (FDIC): Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.

Federal Home Loan Mortgage Corporation (FHLMC, or FreddieMac): This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

FannieMae: Federal National Mortgage Corporation also known as FNMA. A mixed ownership corporation combining stockholders at both the private and federal government levels. They are a long-term investor in residential mortgages and conduct a mortgage-backed securities program for conventional, as well as FHA and VA mortgages. Their service improves the capital available for financing the construction and sale of housing.

Federal Housing Administration (FHA): A federal agency that insures loans offered by certain commercial lenders. FHA was created by the Department of Housing and Urban Development and offers a variety of financing options to help families qualify for a mortgage. How it works is that FHA insures loans, so if you don't repay (default on), FHA covers the amount owed to the lender.

Fee Simple: A term used to describe the most complete ownership that a person can have over a property Fee simple is the most common type of ownership that allows you to have unlimited control over a property - most homes are held in fee simple. You can find this term written on the deed to your home. A property held in fee simple, unlike other types of ownership, can be included in a will for someone to inherit. Fee simple is also called an estate of inheritance or estate in fee. See: Estate

FHA Mortgage: A loan with certain restrictions that is guaranteed by the Federal Housing Administration. FHA mortgages are easier to qualify for since they require a super low down payment, usually about 3% of the loan amount, and offer low interest rates. The catch is you can only borrow up to a certain amount, and you have to pay both an up-front and monthly premium for insurance. The insurance safeguards the lender in case you don't repay the loan. The up-front cost, usually 2-3% of the loan amount, can be lumped onto the loan and paid off over time. To be eligible you must plan to live in the home that you purchase.

FHLMC: This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

FICO: Fair Isaac Company. A specific type of credit score that evaluates and considers only the information in a borrower's file at a credit reporting agency. As an index, the score reflects the relative risk of serious delinquency, default, foreclosure, or bankruptcy associated with a borrower.

Fixed-Rate Loans: Fixed-rate loans have interest rates that do not change over the life of the loan. As a result, monthly payments for principal and interest are also fixed for the life of the loan. Fixed-rate loans typically have 15-year or 30-year terms. With a fixed-rate loan, you will have predictable monthly mortgage payments for as long as you have the loan.

FNMA: This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Freddie Mac: Federal Home Loan Mortgage Corporation also known as Freddie Mac. A congressionally chartered corporation that is taxed as a private entity that purchases loans from mortgage bankers, commercial banks, and HUD approved mortgages.

Fixed Rate Mortgage. (link above)

Foreclosure: When a lender takes possession of a home and sells it in order to repay a loan in default When a home owner can't repay (defaults on) the mortgage and negotiations for an alternative payment plan fail, the lender has no choice but to start the foreclosure process. This process varies from state to state, but in general, a foreclosure is an auction either with or without court action. The sale must be advertised in local newspapers and the highest bidder wins the home. Since the lender only bids on what's owed, a buyer can often find a good deal, especially on an older home. You still get one final chance to keep your home by paying off all delinquent costs either before the sale or in a judicial foreclosure, before the court approves the foreclosure. Having a foreclosure on your credit is serious business, often worse than bankruptcy.

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Good Faith Estimate: Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.

Government National Mortgage Association (Ginnie Mae): A federal corporation that insures mortgage-backed securities, and offers financing options to home buyers. Ginnie Mae makes investing in mortgages as simple as investing in stocks and bonds. Ginnie Mae guarantees mortgage-backed securities, which are similar to bonds except the value is based on a group of mortgages and its interest rate. Since the U.S. government insures these securities, they're considered safe investments.

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Half Buy Down: The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long term rates, however even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.
Hazard Insurance: An insurance policy to protect home owners against property damage. Lenders require that you get hazard insurance policy before you buy or refinance a home. Hazard insurance shields you against property damages caused by a fire or a severe storm. If you live in an area that's prone to natural disasters, like earthquakes and floods, you might need a separate policy. If a catastrophe does happen, hazard insurance should cover the costs to rebuild your home. You have to pay for first year of hazard insurance on the closing date. The lender may also require that you deposit up to 2 months of premiums into an escrow account.
HELOC: Home Equity Line Of Credit. This is a second mortgage that is a revolving line of credit that can be used with some first lien programs to purchase a home, or can be used to get the equity from an existing property. Also see Closed End Second.

Home Owners' Association: The association that manages a condominium or a planned unit development. A homeowners' association oversees how the common areas of a building are maintained and regulated, including everything from paying hazard insurance to cleaning the pool to collecting the garbage. The association also decides how to spend your monthly home owners' association dues.

Home owner's insurance: An insurance policy that protects home owners against theft and property damage Lenders require that you open a hazard insurance policy when you buy a home. Buyers and owners, though, often opt for the extended policy called home owner's insurance. This policy protects you not only against property damage caused by a fire or a severe rainstorm, but can also shield you against theft, vandalism, as well as for stolen cash and personal items. Basically, the more coverage you want, the higher your monthly premium will be. If a catastrophe does happen, home owner's insurance should cover the costs to rebuild your home. If you live in an area that's prone to natural disasters, like earthquakes and floods, you'll need a separate policy. Home owner's insurance can extend to personal liability, which covers any damage that either you or your family might cause someone. It also protects you against any accident that happens around your home, like the postman getting nipped by your guard dog.

Home equity line of credit: A line of credit, secured by a property, that allows owners to tap into their home's equity. You can get a line of credit equal to your home's equity that works like your checking account or credit card. Equity is the difference between the value of your home and the amount you owe on your mortgage. It's flexible, so, if your equity is $20,000, you can withdraw at will up to this amount simply by writing a check. Note that you'll have restrictions on how much you can withdraw at one time. You only pay interest on what you borrow and your credit limit is restored as you pay back what you owe. A home equity line of credit typically stays open for 10 years. Once it closes, you normally have 10 to 15 years to pay back what you owe. The added bonus is that the interest you pay can be deducted from your taxes. But this isn't free money, if you can't repay the credit line you could risk losing your home.

Home equity loan: A loan that allows home owners to borrow against the equity in their property. A home equity loan lets you use your equity, the value of your home minus what you owe, as a guarantee that you'll repay the loan. Depending on the lender, you could borrow between 80% to 100% of your home's equity, and sometimes more. Home owners often apply for home equity loans to pay college tuition, to make major renovations on a home, or to pay off credit card debt. Home equity loans have a fixed interest rate and payment for usually 10 to 15 years. Since these loans are riskier than mortgages for lenders, the interest rates are higher. Keep in mind that you still have to fork out closing costs, such as the processing and appraisal fees.

HUD-1: A document that gives a breakdown of the costs that the buyer and seller pay at closing. A HUD-1 gives you the final record of the fees paid at closing. In some states, you receive the HUD-1on or after the closing date. If your property closes in escrow, you may receive the final HUD-1 in the mail, normally within 24 hours after the deed of trust is recorded. The lender, broker, escrow agent or attorney can prepare the HUD-1, which is also called a closing statement and settlement statement.

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Impound account: An account used to pay your hazard insurance, mortgage insurance and property taxes. An impound account is set up by the lender for you to prepay certain recurring costs at closing, such as your first 6 months of property taxes, your first 2 months of hazard insurance, and your first 2 months of mortgage insurance, if required. From then on, you pay these bills from this account. Some lenders let you waive the impound account, but may tack on additional points to your closing costs if you choose to not have one. An impound account is also called an escrow account.

Index: A published rate used by lenders that serves as the basis for determining interest rate changes on ARM loans.

Initial Interest Rate: Starting interest rate of an adjustable rate mortgage(ARM) The initial interest rate on an ARM, sometimes called a teaser rate, is fixed for a certain period then adjusts to reflect overall market rates. The lender starts you off with a very low initial rate, planning that interest rates will rise in the future and adjust to market rates. Fixed rate loans, on the other hand always have the same interest rate for the life a loan, and the rate is usually higher than an ARM's initial interest rate.

Interest: Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed.

Interest Rate: The annual rate of interest on the loan, expressed as a percentage of 100.

Interest Rate Cap: Limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down. Most ARMs have two types of interest rate caps: (1) lifetime caps, which are required by law, that limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6 percentage points over or under the initial rate and (2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as a ceiling or floor.

Introductory Rate: An adjustable rate mortgage's (ARM) starting interest rate, which stays fixed for a certain time then adjusts to reflect overall market interest rates.

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Joint Tenancy: A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

Jumbo Loan: A loan which is larger (more than $240,000) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

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Liability: Any debt that you are responsible to (re)pay. Lenders want to know what liabilities you have to see if you're a high-risk candidate for a loan. Liabilities include car and student loans, credit card debt, child support, insurance premiums and alimony. The fewer liabilities that you have, the more confident a lender feels about giving you a loan.

Lien: A legal claim by one person on the property of another for security for payment of a debt.

Lifetime Rate Cap: Limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down over the life of a loan The average lifetime rate cap is 5 to 6 percentage points over an ARM's initial interest rate. So, for example, if your initial interest rate is 6% and the lifetime rate cap is +5%, your rate can't go beyond 11% over the loan's term. The maximum lifetime rate cap is often called the ceiling, similarly, the minimum lifetime rate cap is called the floor.

Limited Doc: A loan processing option which does not require verification of income or employment. The income and employment is simply listed on the loan application.

Lock: A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.

Loan Origination Fee: Fee charged by a lender to cover administrative costs of processing a loan.

Loan-to-Value Ratio (LTV): The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property.

Lock-in Rate: A lender's guarantee for a specific interest rate on a loan. Until you request a rate lock, a loan's interest rate quoted by either a lender or broker is apt to change due to market fluctuations. The rules on how to do this will vary from lender to lender and broker to broker, but typically you can request a rate lock after you submit your signed loan application/1003 and other requested forms. Don't let a low rate slip through your fingers. Once you've settled on a rate, the lender usually guarantees the rate for 15, 30, 45 or 60 days.

Lock period: The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in an interest on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days (Normally, the longer the lock period, the more points that you have to pay up-front since the lender is taking a greater risk when they guarantee a rate for a long time). You'll need to complete your home's purchase or refinance within the lock period. If you need extra time, you may have to pay up to 1 point (1% of the loan amount) or more, and there's no guarantee that you can keep your original interest rate after the expiration date.

LTV(link)

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Margin: A specified percentage that is added to your chosen financial index to determine your new interest rate at the time of adjustment for ARM loans.
Monthly ARM: With this loan the interest rate is recalculated every month. The rate is usually lower on this ARM compared to others because the lender is only committing to a rate for a month at a time so his vulnerability is significantly reduced.
Mortgage: A document that pledges your property as security for a loan's repayment. If you can't repay the loan on your home, a mortgage gives the lender the right to foreclose on the property and sell it to get back their money. A deed of trust serves the same purpose as a mortgage, however some states traditionally use one or the other - in some cases both, depending on the custom in each county. With a mortgage, the lender must go to court to foreclose on a property.

Mortgage Banker: An individual or company that originates and/or services mortgage loans.

Mortgage Broker: An individual or company that arranges financing for borrowers.

Mortgage: A formal term for the lender in a mortgage agreement.

Mortgage Insurance: Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Mortgagor: A formal term for the borrower in a mortgage agreement.

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Negative Amortization: A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.

Note: A written promise to pay back money at a specific time

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Payment Cap: Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.

Piggy Back Loan: A second loan on a home, usually up to 15% of the property's purchase price. If you can make a 10% down payment on a home, one way to avoid paying for Private Mortgage Insurance (PMI) is to get two loans. Here's how it works: you get a loan for 80% of a property's purchase price at a standard interest rate and then get a second, "piggy back" loan at 10% of the purchase price, though at a higher rate. This type of financing is commonly called 80-10-10. If the first loan is less than $227,150, you can opt for a 75-15-10 arrangement, which will give you a lower interest rate on the first loan. To figure out if getting a second loan makes sense for you, compare your monthly costs with a piggy back loan versus PMI.

Planned Unit Development (PUD): A type of housing project that has five or more individually owned homes and each owner has a share of the common areas. PUDs are generally found in suburban areas. You own your home and the land it's on, as well as a part of the areas that you share with other home owners, like the grounds and swimming pool. Similar to a condominium, you have to pay an owner's association monthly fees to maintain the common areas.

Points (or Discount Points): Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

Preapproval: When a lender commits to a loan before the borrower finds a property to buy. Even if you haven't found a property, some lenders will give you a written preapproval on a loan. The benefits to getting a preapproval are: (1) you know exactly what you can afford to offer for a home (2) you show a seller and your realtor how serious you are about buying a home and (3) you'll sleep better at night. To get a preapproval, you have to fill out a standard loan application called a 1003. Keep in mind that you the lender can only guarantee (lock) the loan's interest rate once you've found a property.

Preliminary Title Report: The results of a title search on a property. Before you go to closing, you'll receive a preliminary title report from a title company. This report proves that the seller is the rightful owner of the property that you want to buy, and lists any claims against the property for unpaid debts, such as property and income taxes. Be sure to bring any claims that need to be cleared to the seller's attention.

Prepayment: Full or partial repayment of the principal before the contractual due date.

Prepayment Penalty: Fee charged by a lender for a loan paid off in advance of the contractual due date.

Prepaid Items: Fees paid on the closing date to cover future costs like property taxes, interest, mortgage insurance and hazard insurance. Lenders want to make sure that their investment is secure, so they may require you to deposit a sum of money in an escrow account to prepay recurring costs, such as: (1) your first 6 months of property taxes (2) your first 2 months of hazard insurance and (3) your first 2 months of mortgage insurance, if required.
Prequalification: When a lender or broker figures out how much you qualify to borrow. Before shopping for a home, you can save yourself a lot of time by first finding out whether or not you are likely to qualify for the loan you want. Also, you'll also get a rough idea of the price range that you can afford on a home. To do this, a lender or broker will look at your income, debt, assets and credit history. If all goes well, you'll receive a prequalification letter that you can then show Realtors, so they feel confident about investing time and energy in your home search.

Principal: The amount of debt, not counting interest, left on a loan.

Principal, Interest, Taxes and Insurance (PITI): The four major costs that a home owner's mortgage payment covers . Lenders use PITI in two ways: (1) With most mortgage plans, the lender collects your monthly mortgage payment that covers the loan principal and interest, as well as one-twelfth of your property taxes and hazard insurance. The lender puts the taxes and insurance into a separate escrow account, and pays off these bills when they become due as a way to protect the loan. (2) Before you apply for a home loan, lenders use a ball park estimate of your expected PITI to calculate your back ratio and front ratio. Lenders use these ratios as guidelines to find out if you qualify for a loan.

Private Mortgage Insurance (PMI): Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Promissory Note: A written promise to pay back a sum of money at a specific time. When you borrow money to buy a home, you must sign a promissory note, which outlines the loan's terms and sets the due date. The most common type of promissory note is called the installment note. This says that your monthly payment must be applied to both the loan's principal and interest. The promissory note enforces the document that secures the property as repayment for the loan, either called a deed of trust or mortgage depending on where your home is. Promissory notes are commonly called notes or IOUs.
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Qualifying Ratios: Guidelines used by lenders to evaluate a home buyer's borrowing potential.

Quitclaim Deed: A document that can be used to both transfer ownership of property and to release a person's claim on a property. Out of all the deeds used to exchange ownership of a home, quitclaim deeds are used the least since they don't give buyers a firm assurance that the seller is the home's legal owner. Quitclaim deeds are usually used to clear up a variety of simple ownership (title) issues. For example, Mr. and Mrs. Stone buy a home together, but 10 years later Mrs. Stone wants to separate and wants nothing to do with the property. She just has to sign a quitclaim deed to release her claim on the property.
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Real Estate Settlement Procedures Act (RESPA): A federal law that requires lenders to provide mortgage loan borrowers with information of known or estimated settlement costs.

Real Property: Land and anything permanently attached to it. Your home, your backyard and your gardenias planted in the yard are examples of real property. Real property can't be moved or taken away without lawful permission. If you want to give or sell someone real property, you must use a document called a deed.

Rebate Point: A credit towards your closing costs in exchange for a higher interest on your loan. You can change your loan's interest rate based on how many points you either pay (called discount points) or receive (rebate points). Each rebate point, which is equal to 1% of the loan amount, will increase your interest rate by about .25%. So, if you opt for one rebate point on a $100,000 loan with an 8% market rate, you'd get $1,000 towards your closing costs and your new interest rate would be 8.25%.Note that you can't pocket the cash from rebate points. You can only use them towards your non-recurring closing costs, including your appraisal, property inspection, title insurance and lender/broker origination fees. Rebate points don't cover your prepaid interest, hazard insurance, Private Mortgage Insurance (PMI) and impounds.

Recording: The act of entering documents concerning title to a property into the public records.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

Regulation Z: A federal law that requires a lender to give borrowers the Annual Percentage Rate(APR). The APR helps borrowers compare one loan to another since it factors in not only the interest rate but also all the fees and closing costs that you need to pay. APR, though, is not always the best measure of comparison since not all the lenders include the same fees and closing costs. Regulation Z is also called the Truth-in-Lending Act.
Residential Loan Application Form (1003): The name of the standard loan application that all lenders require a borrower to complete when applying for a loan.

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Second Mortgage: A mortgage which ranks after a first mortgage in priority. Properties may have two, three, or more Mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.

Settlement: When a property's sale or purchase is completed. Depending on where you live, settlement can either be in escrow, or a sit-down meeting between the buyer and seller. The rules for settlement vary from state to state, as well as from county to county, but typically here's what takes place: (1) the buyer pays for the home and closing costs in one lump-sum (2) the buyer and seller sign the closing documents (3) the deed is recorded and (4) the mortgage officially begins. If settlement is a meeting, the buyer and seller are often joined by mortgage brokers, attorneys, a lender representative or title officer. Settlement is also called closing.

Sweat Equity: Value added to a property in the form of labor or services of the owner rather than cash.

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Tenancy in Common: A type of ownership where two or more people share ownership of a property, but not necessarily equally. Even though the owners of a tenancy in common property can have unequal shares of the property, they all have the right to use the entire property. Unlike joint tenancy, tenancy in common doesn't have right of survivorship. So, if one of the co-owners dies, his/her interest passes to an heir(s), not the surviving co-owners. When this happens, probate court is required.
Title Company: A company that insures title to property.

Title Insurance: Insurance which protects the lender (lender's policy) or the buyer (owner's policy) against loss due to disputes over ownership of a property.

Title Report: The results from a title search. In some states, the title insurance company conducts a second title search a couple of days before closing and gives you a title report. This report makes sure that there are no claims on the property and that the seller is the legal owner of the property. If there are any claims, they must be cleared before you can buy it.

Title Search: Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.

Transfer Tax: A state or local tax that a buyer or seller has to pay when property changes ownership. The seller usually has to pay the transfer tax, which is paid on the closing date. The rules on how it's calculated vary from state to state, but usually it's based on the property's purchase price. Some cities will also add a tax on top of the transfer tax.
Truth-in-Lending Act: A federal law that requires a lender to give borrowers the Annual Percentage Rate(APR). The APR helps borrowers compare one loan to another since it factors in not only the interest rate but also all the fees and closing costs that you need to pay. APR, though, is not always the best measure of comparison since not all the lenders include the same fees and closing costs. The Truth-in-Lending Act is also called Regulation Z.
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Underwriting: A lender's process to evaluate whether or not to give a borrower a loan. When lenders underwrite a loan, they look at your income, debt and credit history to see if you're a low-risk loan candidate. Once your loan is approved and you meet all the lender's conditions, you can sign the final loan documents. The lender will then fund the loan and you're home free.

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VA Loans: Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee, and lower closing costs than other financing options. The maximum VA loan amount is currently $203,000.

Verification of Deposit (VOD): A document from a bank vouching for the balance of a person's checking and savings accounts. A lender may ask for a VOD when you're applying for a loan to make sure that you actually have the money stated on your loan application.

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Zero Cost: This is the same as no-cost loan. Typically no-cost loan will have zero point and zero closing cost. All of your non-recurring costs will be rebated at the time of closing (e.g., broker fees, lender fees, title fees, credit and appraisal fees). However, the borrowers are required to pay recurring costs at closing (e.g., property taxes, homeowner’s insurance-if not currently covered, mortgage insurance-if applicable). They are not rebated and no-cost loans have higher interest rates.

Zoning Ordinances (or Zoning Regulations): Local law establishing building codes and usage regulations for properties in a specified area.

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Glossary

Alpahbetical Index(click on a letter)

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Alpahbetical Index
(click on a letter)