Glossary

ACCELERATION CLAUSE – A provision in a mortgage that gives the lender the right to demand immediate payment of the outstanding loan balance under certain circumstances. Usually when the borrower defaults on the loan.

ADDENDUM – A supplement to any document that contains additional information pertinent to the subject. Appraisers use an addendum to further explain items for which there was inadequate space on the standard appraisal form.

ADJUSTABLE-RATE MORTGAGE (ARM) – A type of mortgage where the interest rate varies based on a particular index, normally the prime lending rate

ADJUSTMENT DATE – The date the interest rate changes on an adjustable rate mortgage

AFFORDABILITY ANALYSIS – A calculation used to determine an individual’s likelihood of being able to meet the obligations of a mortgage for a particular property. Takes into account the down payment, closing costs and on-going mortgage payments.

AMORTIZATION – The repayment of a loan through regular periodic payment.

AMORTIZATION SCHEDULE – The breakdown of individual payments throughout the life of an amortized loan, showing both principal contribution and debt service (interest) fees.

AMORTIZATION TERM – The length of time over which an amortized loan is repaid. Mortgages are commonly amortized over 15 or 30 years

ANNUAL PERCENTAGE RATE (APR) – The rate of annual interest charged on a loan.

APPLICATION – A form used to apply for a mortgage loan that details a potential borrower’s income, debt, savings and other information used to determine credit worthiness.

APPRAISAL – A ”defensible” and carefully documented opinion of value. Most commonly derived using recent sales of comparable properties by a licensed, professional appraiser.

APPRAISAL REPORT – The end result of the appraisal process usually consists of one major standardized form such as, the Uniform Residential Appraisal Report form 1004, as well as all supporting documentation and additional detail information. The purpose of the report is to convey the opinion of value of the subject property and support that opinion with corroborating information.

APPRAISED VALUE – An opinion of the fair market value of a property as developed by a licensed, certified appraiser following accepted appraisal principals.

ARMS LENGTH TRANSACTION – Any transaction in which the two parties are unconnected and have no overt common interests. Such a transaction most often reflects the true market value of a property.

ASSIGNMENT – Transfer of ownership of a mortgage usually when the loan is sold to another company.

ASSUMABLE MORTGAGE – A mortgage that can be taken over by the buyer when a home is sold

ASSUMPTION – When a buyer takes over, or “assumes” the sellers mortgage.

BALLOON MORTGAGE – A mortgage loan in which the monthly payments are not large enough to repay the loan by the end of the term. So at the end of the term, the remaining balance comes due in a single large payment.

BALLOON PAYMENT – The final large payment at the end of a balloon mortgage term.

BANKRUPTCY – When a person or business is unable to pay their debts and seeks protection of the state against creditors. Bankruptcies remain on credit records for up to ten years and can prevent a person from being able to get a loan.

BIWEEKLY MORTGAGE – A mortgage where you make “half payments” every two weeks, rather than one payment per month. This results in making the equivalent of 13 monthly payments per year, rather than 12, significantly reducing the time it takes to pay off a thirty year mortgage.

BRIDGE FINANCING – An interim loan made to facilitate the purchase of a new home before the buyer’s current residence sells and its equity is available to fund the new purchase.

BUY DOWN – Extra money paid in a lump sum to reduce the interest rate of a fixed rate mortgage for a period of time. The extra money may be paid by the borrower, in order to have a lower payment at the beginning of the mortgage. Or paid by the seller, or lender, as incentive to buy the property or take on the mortgage.

CALL OPTION – A clause in a mortgage which allows the lender to demand payment of the outstanding balance at a specific time.

CAP – Associated with Adjustable Rate Mortgages. A limit on how high monthly payments or how much interest rates may change within a certain time period or the life of the mortgage.

CASH-OUT REFINANCE – Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash.

CERTIFICATE OF DEPOSIT – A document showing that the bearer has a certain amount of money, at a particular amount interest, on deposit with a financial institution.

CERTIFICATE OF ELIGIBILITY – A document issued by the Veterans Administration that certifies eligibility for a VA loan.

CERTIFICATE OF TITLE – A document designating the legal owner of a parcel of real estate. Usually provided by a title or abstract company.

CHAIN OF TITLE – The complete history of ownership of a piece of property.

CLEAR TITLE – Ownership of property that is not encumbered by any counter-claim or lien.

CLOSING COSTS – All appropriate costs generated by the sale of property which the parties must pay to complete the transaction. Costs may include appraisal fees, origination fees, title insurance, taxes and any points negotiated in the deal.

COMPOUND INTEREST – Interest paid on the principal amount, as well as any accumulated interest.

CONSTRUCTION LOAN – A loan made to a builder or home owner that finances the initial construction of a property, but is replaced by a traditional mortgage one the property is completed.

CONVENTIONAL MORTGAGE – A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.).

CONVERTIBLE ARM – A mortgage that begins as and adjustable, that allows the borrower to convert the loan to a fixed rate within a specific timeframe.

CREDIT – A loan of money for the purchase of property, real or personal. Credit is either secured by an asset, such as a home, or unsecured.

CREDIT HISTORY – A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals.

CREDIT REPORT – A detailed report of an individuals credit, employment and residence history prepared by a credit bureau. Used by lenders to determine credit worthiness of individuals.

DEBT EQUITY RATIO – The ratio of the amount a mortgagor still owes on a property to the amount of equity they have in the home. Equity is calculated at the fair-market value of the home, less any outstanding mortgage debt.

DEED-IN-LIEU (OF FORECLOSURE) – A document given by a borrower to a lender, transferring title of the property. Often used to avoid credit-damaging foreclosure procedures.

DEFAULT – The condition in which a borrower has failed to meet the obligations of a loan or mortgage.

DISCOUNT POINTS – Points paid in addition to the loan origination fee to get a lower interest rate. One point is equal to one percent of the loan amount.

DUE-ON-SALE PROVISION – A clause in a mortgage giving the lender the right to demand payment of the full balance when the borrower sells the property.

EARNEST MONEY DEPOSIT – A cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer.

EQUAL CREDIT OPPORTUNITY ACT (ECOA) – U.S. federal law requiring that lenders afford people equal chance of getting credit without discrimination based on race, religion, age, sex etc

EQUITY – The difference between the fair market value of a property and that amount an owner owes on any mortgages or loans secured by the property.

ESCROW – An amount retained by a third party in a trust to meet a future obligation. Often used in the payment of annual taxes or insurance for real property.

FAIR CREDIT REPORTING ACT – A federal law regulating the way credit agencies disclose consumer credit reports and the remedies available to consumers for disputing and correcting mistakes on their credit history.

FANNIE MAE – A private, shareholder-owned company that works to make sure mortgage money is available for people to purchase homes. Created by Congress in 1938, Fannie Mae is the nation’s largest source of financing for home mortgages.

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) – The U.S. Government agency created in 1933 which maintains the stability of and public confidence in the nation’s financial system by insuring deposits and promoting safe and sound banking practices.

FEDERAL HOUSING ADMINISTRATION (FHA) – A sub-agency of the U.S. Department of Housing and Urban Development created in the 1930’s to facilitate the purchase of homes by low-income, first-time home buyers. It currently provides federally-subsidized mortgage insurance for private lenders.

FHA MORTGAGE – A mortgage that is insured by the Federal Housing Administration (FHA).

FIRST MORTGAGE – The primary loan or mortgage secured by a piece of property.

FIXED-RATE MORTGAGE (FRM) – A mortgage which has a fixed rate of interest over the life of the loan.

FORECLOSURE – The process whereby a lender can claim the property used by a borrower to secure a mortgage and sell the property to meet the obligations of the loan.

GINNIE MAE – A wholly owned corporation created in 1968 within the U.S. Department of Housing and Urban Development to serve low-to moderate-income homebuyers.

GOVERNMENT MORTGAGE – Any mortgage insured by a government agency, such as the FHA or VA.

HOME EQUITY CONVERSION MORTGAGE (HECM) – Also known as a reverse annuity mortgage. It allows home owners (usually older) to convert equity in the home into cash. Normally paid by the lender in monthly payments. HECM’s typically do not have to be repaid until the borrower is no longer occupying the home.

HOME EQUITY LINE OF CREDIT – A type of mortgage loan that allows the borrower to draw cash against the equity in his home.

HOMEOWNER’S ASSOCIATION – An organization of home owners in a particular neighborhood or development formed to facilitate the maintenance of common areas and to enforce any building restrictions or covenants.

HOMEOWNER’S INSURANCE – A policy which covers a home owner for any loss of property due to accident, intrusion or hazard.

HUD-1 STATEMENT – A standardized, itemized list, published by the U.S. Department of Housing and Urban Development (HUD), of all anticipated

CLOSING COSTS РAre connected with a particular property purchase.

INCOME PROPERTY – A piece of property whose highest and best use is the generation of income through rents or other sources.

INTEREST RATE – A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.

JUDICIAL FORECLOSURE – A type of foreclosure conducted as a civil suit in a court of law.

JUMBO LOAN – A mortgage loan for an amount greater than the limits set by Fannie Mae and Freddie Mac. Often called non-conforming loans.

LENDER – The person or entity who loans funds to a buyer. In return, the lender will receive periodic payments, including principal and interest amounts.

LIEN – Any claim against a piece of property resulting from a debt or other obligation.

LINE OF CREDIT – An extension of credit for a certain amount for a specific amount of time. To be used by the borrower at his discretion

LOAN SERVICING – The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc Typically carried out by the company you make payments to.

LOAN-TO-VALUE RATIO (LTV) – The comparison of the amount owed on a mortgaged property to its fair market value.

LOCK-IN – An agreement between a lender and a borrower, guaranteeing an interest rate for a loan if the loan is closed within a certain amount of time.

LOCK-IN PERIOD – The amount of time the lender has guaranteed an interest rate to a borrower.

MERGED CREDIT REPORT – A credit report derived from data obtained from multiple credit agencies.

MORTGAGE BANKER – A financial institution that provides primary and secondary mortgages to home buyers.

MORTGAGE BROKER – A person or organization that serves as a middleman to facilitate the mortgage process. Brokers often represent multiple mortgage bankers and offer the most appropriate deal to each buyer.

MORTGAGE INSURANCE – A policy that fulfills those obligations of a mortgage when the policy holder defaults or is no longer able to make payments.

MORTGAGE INSURANCE PREMIUM (MIP) – A fee that is often included in mortgage payments that pays for mortgage insurance coverage.

NEGATIVE AMORTIZATION – When the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Adjustable Rate Mortgage during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest.

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-POINT LOAN – A loan with no “points”. The interest rate on such a loan will be higher than a loan with points paid. Also sometimes refers to a refinance loan where closing costs are included in the loan.

ORIGINATION FEE – Refers to the total number of points paid by a borrower at closing.

PERIODIC PAYMENT CAP – The limit on how much regular monthly payments on an Adjustable Rate Mortgage can change during one adjustment period.

PERIODIC RATE CAP – The limit on how much the interest rate on an Adjustable Rate Mortgage can change during any one adjustment period.

PRE-APPROVAL – The process of applying for a mortgage loan and becoming approved for a certain amount at a certain interest rate before a property has been chosen. Pre-approval allows the borrower greater freedom in negotiations with sellers.

PRE-QUALIFICATION – Less formal that pre-approval, pre-qualification usually means a written statement from a loan officer indicating his or her opinion that the borrower will be able to become approved for a mortgage loan.

PREPAYMENT – Payment made that reduces the principal balance of a loan before the due date and before the loan has become fully amortized.

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

PRINCIPAL – The amount owed on a mortgage which does not include interest or other fees.

PRINCIPAL BALANCE – The outstanding balance of principal on a mortgage. Does not included interest due.

PRIVATE MORTGAGE INSURANCE (PMI) – A form of mortgage insurance provided by private, non-government entities. Normally required when the loan to value ratio is less than 20%.

QUALIFYING RATIOS – Two ratios used in determining credit worthiness for a mortgage loan. One is the ratio of a borrower’s monthly housing costs to monthly income. The other is a ratio of all monthly debt to monthly income.

RATE LOCK – A guarantee from a lender of a specific interest rate for a period of time.

REFINANCE TRANSACTION – A new loan to pay off an existing loan. Typically to gain a lower interest rate or convert equity into cash.

SECOND MORTGAGE – A loan secured by the equity in a home, when a primary mortgage already exists.

SECONDARY MORTGAGE MARKET – An economic marketplace where mortgage bankers buy and sell existing mortgages.

SERVICER – A financial institution which collects mortgage payments from borrowers and applies the appropriate portions to principal, interest and any escrow accounts.

SERVICING – The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc Typically carried out by the company you make payments to.

TITLE COMPANY – An organization which researches and certifies ownership of real estate before it is bought or sold. Title companies also act at the facilitator ensures all parties are paid during the real estate transaction.

TITLE INSURANCE – A policy which insures a property owner should a prior claim arise against the property after the purchase has been completed. This also covers a lender should a question of ownership arise.

TRUTH IN LENDING – A federal law requiring full disclosure by lenders to borrowers of all terms, conditions and costs of a mortgage.

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

VETERANS AFFAIRS, DEPARTMENT OF (VA) – The successor to the Veteran’s Administration, this government agency is responsible for ensuring the rights and welfare of our nation’s veterans and their dependents. Among other duties, the VA insures home loans made to veterans.