Everything Money Dictionary!

TIP: Establish a routine for paying your bills and stick to it. Try paying them on payday.

401(k)/403(b)

An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

401(k)/403(b) loan

Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Acceleration clause

A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Adjustable rate mortgage (ARM)

Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Adjustable-rate mortgage (ARM)

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

Adjustment date

The date the interest rate changes on an adjustable-rate mortgage

Adjustment interval

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Amortization

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

Amortization

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Amortization schedule

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Annual percentage rate (APR)

This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.

Annual percentage rate A.P.R.

Is a interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. the APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Application

The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.

Appraisal

A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

Appraisal

An estimate of the value of property, made by a qualified professional called an "appraiser".

Appraised value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Appraiser

An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

Appreciation

The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Assessed value

The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment

The placing of a value on property for the purpose of taxation.

Assessment

A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assessor

A public official who establishes the value of a property for taxation purposes.

Asset

Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

Assignment

When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Assumable mortgage

A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

Assumption

The term applied when a buyer assumes the seller’s mortgage.

Assumption

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.

Balloon (payment) mortgage

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Balloon mortgage

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Balloon payment

The final lump sum payment that is due at the termination of a balloon mortgage.

Bankruptcy

By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Bill of sale

A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

Biweekly mortgage

A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.

Blanket Mortgage

A mortgage covering at least two pieces of real estate as security for the same mortgage.

Bond market

Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

Borrower (Mortgagor)

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full

Bridge loan

Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.

Broker

Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers us ally charge a fee or receive a commission for their services.

Buydown

Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

Buy-down

When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Call option

Similar to the acceleration clause.

Cap

Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

Caps (interest)

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Caps (payment)

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

Cash Flow

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)

Cash-out refinance

When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a "cash out refinance." (top)

Certificate of deposit

A time deposit held in a bank which pays a certain amount of interest to the depositor. (top)

Certificate of deposit index

One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit. (top)

Certificate of Eligibility

A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.(top)

Certificate of Eligibility ,

The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility

Certificate of Reasonable Value (CRV)

Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Certificate of Reasonable Value (CRV)

An appraisal issued by the Veterans Administration showing the property's current market value

Certificate of veteran status

The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans.

Chain of title

An analysis of the transfers of title to a piece of property over the years.

Clear title

A title that is free of liens or legal questions as to ownership of the property.

Closing

This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.

Closing

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount. commitment an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Closing costs

Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

Closing statement

See Settlement Statement.

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 deed, release, or court action.

Co-borrower

IAn additional individual who is both obligated on the loan and is on title to the property.

Collateral

In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

Collection

When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to "collection." As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.

Commission

Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.(top)

Commitment

A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. construction loan (interim loan): A loan to provide the funds necessary to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

Common area assessments

In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas. (top)

Common areas

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Common law

An unwritten body of law based on general custom in England and used to an extent in some states.

Community property

In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.

Comparable sales

Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."

Condominium

A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

Condominium conversion

Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium hotel

A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.

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.

Construction loan

A short term interim loan for financing the cost of construction. The lender advance funds to the builder at periodic intervals as the work progresses.

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 or not to do a certain thing.

Contract sale or deed

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional loan

A mortgage not insured by FHA or guaranteed by the VA or deferred interest: When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.

Conventional mortgage

Refers to home loans other than government loans (VA and FHA).

Convertible ARM

IAn adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

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.

Cost of funds index (COFI)

One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

Credit

An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date. (top)

Credit history

A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

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.

Credit Report

A report documenting the credit history and current status of a borrower's credit standing.

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.

Debt

An amount owed to another.

Debt-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to-income ratio.

Deed

The legal document conveying title to a property.

Deed of trust

Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.

Deed of trust

In many states, this document is used in place of a mortgage to secure the payment of a note.

Deed-in-lieu

Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Default

Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

Default

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Deferred interest

see negative amortization

Delinquency

Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

Delinquency

Failure to make payments on time. this can lead to foreclosure.

Department of Veterans Affairs (VA)

An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Deposit

A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an "earnest money deposit."

Depreciation

A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.

Discount Point

see point

Discount points

In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.

Down payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Down Payment

Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on conventional.

Due-On-Interest:

A clause inserted in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC Mortgage.

Due-on-sale provision

A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

Due-on-Sale-Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

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.

Eminent domain

The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Encroachment

An improvement that intrudes illegally on another’s property.

Encumbrance

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Entitlement

The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

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.

Equal Credit Opportunity Act (ECOA)

Is 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 and other liens.

Equity

The value an owner has in real estate over and above the obligation against the property.

Equity

The difference between the fair market value and current indebtedness, also referred to as the owner's interest.

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 earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Escrow

Funds that are set aside and held in trust, usually for payment of taxes and insurance on real property. Also earnest deposits held pending loan closing.

Escrow

Refers to a neutral third party who carries out the instruction of both the buyer and seller to handle all the paperwork of settlement or closing." Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.

Escrow account

Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow analysis

Once each year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow disbursements

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Estate

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 that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Executor

A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form. (

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, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae

seeFederal National Mortgage Association.

Fannie Mae (FNMA)

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.

Fannie Mae's Community Home Buyer's Program

An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Farmers Home Administration (FmHA)

provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank Board (FHLBB)

A regulatory and supervisory agency for federally chartered savings institutions.

Federal Home Loan Mortgage Corporation(FHLMC) also called "Freddie Mac",

is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers

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 or plan or construct housing. top)

Federal Housing Administration (FHA)

A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA) also know as "Fannie Mae"

A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

Fee simple

The greatest possible interest a person can have in real estate.

Fee simple estate

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

Fha loan

a loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($124,875 and higher), they are generous enough to handle moderately-priced homes almost anywhere in the country.

Fha mortgage

A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

Fha mortgage insurance

Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

Fhlmc

The Federal Home Loan Mortgage Corporation provides a secondary market for saving and loans by purchasing their conventional loans. Also known as "Freddie Mac."

Firm commitment

A lender’s agreement to make a loan to a specific borrower on a specific property.

Firm Commitment

A promise by FHA to insure a mortgage loam for a specified property and borrower. A promise from a lender to make a mortgage loan.

First mortgage

The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed Rate Mortgage

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Fixed-rate mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

Fixed-Rated Mortgage

A mortgage on which the interest rate is set for the term of the loan.

Fixture

Personal property that becomes real property when attached in a permanent manner to real estate.

Flood insurance

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Fnma

The federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."

Foreclosure

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Foreclosure

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Foreclosure

A legal procedure in which property securing debt is sold by the lender to pay the defaulting borrower's debt.

Freddie Mac

see Federal Home Loan Mortgage Corporation

Ginnie Mae

see Government National Mortgage Association.

Government loan (mortgage)

A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association (Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)

Government National Mortgage Association (GNMA) also known as "Ginnie Mae,

provides sources of funds for residential mortgage, insured or guaranteed by FHA or VA

Graduated Payment Mortgage (GPM)

A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grantee

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

Grantor

The person conveying an interest in real property.

Guaranty

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

Hazard insurance

Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

Hazard Insurance

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Home Equity Conversion Mortgage (HECM)

Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of 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 equity line of credit

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home inspection

A thorough inspection by a professional 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 often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

Housing Expenses-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See debt-to-income ratio.

Hud median income

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

Hud-1 settlement statement

A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the "closing statement" or "settlement sheet."

Impound

That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Interim Financing

A construction loam made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Investor

A money source for a lender.

Joint tenancy

A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.

Judgment

A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.[Top]

Judicial foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

Jumbo loan

A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Jumbo Loan

a loan which is larger (more than $275,250) 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.

Late charge

The penalty a borrower must pay when a payment is made a stated number of days. On a first trust deed or mortgage, this is usually fifteen days.

Lease

A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time. [Top]

Lease option

An alternative financing option that allows home buyers to lease a home with an option to buy. Each month's rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.

Leasehold estate

A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it. [Top]

Legal description

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.

Lender

A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as "lenders."

Liabilities

A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Liability insurance

Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner’s insurance policy.

Lien

A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.

Lien

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Life cap

For an adjustable-rate mortgage (ARM), a limit on the amount that the enterest rate can increase or decrease over the life of the mortgage.

Line of credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid asset

A cash asset or an asset that is easily converted into cash.

Loan

A sum of borrowed money (principal) that is generally repaid with interest.

Loan officer

Also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.

Loan origination

How a lender refers to the process of obtaining new loans.

Loan servicing

After you obtain a loan, the company you make the payments to is "servicing" your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

Loan-to-value (LTV)

The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

Loan-to-Value Ratio

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock-in

An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Lock-in period

The time period during which the lender has guaranteed an interest rate to a borrower.

Margin

The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.

Margin

The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Maturity

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.[Top]

Merged credit report

A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.

Mip: Mortgage Insurance Premium

is the one-half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. The MIP was changed to a one-time charge to the borrowers.

Modification

Occasionally, a lender will agree to modify the terms of your mortgage without requiring you t refinance. If any changes are made, it is called a modification.

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.[

Mortgage banker

For a more complete discussion of mortgage banker, see "Types of Lenders." A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.

Mortgage broker

A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

Mortgage Insurance

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

Mortgage insurance (MI)

Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves "No MI" are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

Mortgage insurance premium (MIP)

The amount paid by a mortgagor 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 and disability insurance

A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability. Be careful to read the terms of coverage, however, because often the coverage does not start immediately upon the disability, but after a specified period, sometime forty-five days.

Mortgagee

The lender in a mortgage agreement.

Mortgagee

The lender

Mortgagor

The borrower in a mortgage agreement.[Top]

Mortgagor

The borrower or homeowner

Multidwelling units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Negative amortization

Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

Negative Amortization

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. the danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

Negotiable Rate Mortgage (RBM)

a loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

Net Effective Income

The borrower's gross income minus federal income tax.

No cash-out refinance

A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a "rate and term refinance."

No-cost loan

Many lenders offer loans that you can obtain at "no cost." You should inquire whether this means there are no "lender" costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a "no-point" loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.

No-cost loan

Almost all lenders offer loans at "no points." You will find the interest rate on a "no points" loan is approximately a quarter percent higher than on a loan where you pay one point.

Non Assumption Clause

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

Note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Note rate

The interest rate stated on a mortgage note.

Notice of default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Original principal balance

The total amount of principal owed on a mortgage before any payments are made.

Origination fee

On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

Origination Fee

The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan. (points)

Owner financing

A property purchase transaction in which the property seller provides all or part of the financing.

Partial payment

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

Payment change date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Periodic payment cap

For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic rate cap

For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

Permanent Loan

A long term mortgage, usually ten years or more. Also called an "end loan."

Personal property

Any property that is not real property.

Piti

This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

Piti

Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Piti reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned unit development (PUD)

A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

Planned Unit Development (PUD)

A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

Pledged account Mortgage (PAM):

Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

Point

A point is 1 percent of the amount of the mortgage.

Points (loan discount points)

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Power of attorney

A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Power of Attorney

A legal document authorizing one person to act on behalf of another.

Pre-approval

A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification

Prepaid Expenses

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment penalty

A fee that may be charged to a borrower who pays off a loan before it is due.

Prepayment Penalty

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Pre-qualification

This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

Primary Mortgage Market

Lenders making mortgage loans directly to borrower's such as savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Prime rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

Principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal

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

Principal balance

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

Principal, interest, taxes, and insurance (PITI)

The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

Private mortgage insurance (MI)

Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Private Mortgage Insurance (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on you loan's structure. On a $75,000 house with a 10 percent down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

Promissory note

A written promise to repay a specified amount over a specified period of time.

Public auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

Purchase agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase money transaction

The acquisition of property through the payment of money or its equivalent.

Qualifying ratios

Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt. [Top]

Quitclaim deed

A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

Rate lock

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

Real estate agent

A person licensed to negotiate and transact the sale of real estate.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

Realtor®

A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

Realtor®

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recorder

The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

Recording

The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Recording Fees

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refinance

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

Refinance transaction

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. See principal balance.

Remaining term

The original amortization term minus the number of payments that have been applied.

Rent loss insurance

Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

Repayment plan

An arrangement made to repay delinquent installments or advances.

Replacement reserve fund

A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.

Respa

short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Reverse Annuity Mortgage (RAM)

a form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home asSatisfaction of Mortgage: The document issued by the mortgagee when the mortgage loam is paid in full. Also called a "release of mortgage."

Revolving debt

A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

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.

Right of ingress or egress

The right to enter or leave designated premises.

Right of survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Sale-leaseback

A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

Second mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Second Mortgage

A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary market

The buying and selling of existing mortgages, usually as part of a "pool" of mortgages.

Secondary Mortgage Market

The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders. security.

Secured loan

A loan that is backed by collateral.

Security

The property that will be pledged as collateral for a loan.

Seller carry-back

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

Servicer

An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Servicing

all the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement statement

See HUD1 Settlement Statement

Settlement/Settlement Costs

see closing/closing costs

Shared Appreciation Mortgage (SAM)

a mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

Simple Interest

Interest which is computed only on the principle balance.

Subdivision

A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Subordinate financing

Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

Survey

A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Survey

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Sweat equity

Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

Sweat Equity

Equity created by a purchaser performing work on a property being purchased. term mortgage see balloon payment mortgage.

Tenancy in common

As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.

Third-party origination

A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Title

A legal document evidencing a person's right to or ownership of a property.

Title

a document that gives evidence of an individual's ownership of property.

Title company

A company that specializes in examining and insuring titles to real estate.

Title insurance

Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Insurance

a policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is us ally a function of the value of the property, and is often borne by the purchaser and/or seller.

Title search

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Title Search

an examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

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.

Transfer tax

State or local tax payable when title passes from one owner to another.

Treasury index

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. [Top]

Trustee

A fiduciary who holds or controls property for the benefit of another.

Truth-in-Lending

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

Truth-In-Lending

a federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan.

Two- to four-family property

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

Two-step mortgage

An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

Two-Step Mortgage

a mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. the lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called "Super Seven" or "Premier" mortgage.

Underwriting

the decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Usury

Interest charged in excess of the legal rate established by law.

Va Loan

a long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

Va mortgage

A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

Va Mortgage Funding Fee

a premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Rate Mortgage (VRM)

see adjustable rate mortgage

Verification of Deposit (VOD)

a document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE)

a document signed by the borrower's employer verifying his/her position and salary.

Vested

Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.

Veterans Administration (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

Warehouse Fee

Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee. wraparound results when an existing assumable loan is combined with anew loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.