Adjustable Rate Mortgage (ARM) – A mortgage for which the interest rate, after a given period of time, is adjusted periodically according to the movement of a pre-selected index.
Amortization – A payment plan enabling a borrower to reduce debt through gradual monthly principal payments.
Annual Percentage Rate (APR) – The total yearly cost of a mortgage including rate of interest paid and includes the base interest rate, points and any other add-on loan fees and costs.
Appraisal – A licensed appraiser’s professional opinion of a property’s fair market value, based on an appraiser’s knowledge, experience and analysis of the property.
Appreciation – An increase in the value of a house due to changes in market conditions or other causes.
Assignment – The transfer of a mortgage from one person to another.
Borrower – One who receives funds with the expressed or implied intention of repaying the loan in full.
Bridge Loan – A form of a second trust collateralized by the borrower’s present home in a manner allowing the proceeds to be used for closing on a new house before the present home is sold.
Broker – An individual in the business of arranging or negotiating – but not funding – financing for a borrower.
Buy Down – Money advanced by an individual to reduce monthly payments for a mortgage either during the entire term or for an initial period of years.
Cash-out Refinance – A transaction in which the amount of money received from a new loan exceeds the total required to repay an existing first mortgage, closing costs, points and the amount required to satisfy any outstanding subordinate mortgage liens.
Closing – The event where a sale is finalized. The buyer signs the mortgage and pays closing costs. The certificate of title, abstract and deed are generally prepared for the closing by a closing agent, whose service is charged to the buyer. The final closing confirms the original agreement reached in the agreement of sale.
Closing Costs – Expenses incurred by buyers and sellers in transferring ownership of a property. Also known as “settlement costs”.
Collateral – An asset that guarantees the repayment of a loan.
Comparables – An abbreviation for comparable properties that have characteristics similar to the property under consideration. Comparables are analyzed to approximate the fair market value of the subject property.
Construction Loan – A short-term loan for funding the cost of construction. Typically, the lender advances funds to the builder as work progresses.
Contingency – A condition that must be met before a contract is legally binding.
Conventional Mortgage – Any mortgage not insured or guaranteed by the federal government.
Credit History – A record of an individual’s debts. A credit history helps a lender determine whether a potential borrower has a history of repaying debts.
Debt-to-Income Ratio (DTI) – Ratio of aggregate monthly debt to aggregate monthly income.
Deed-in-Lieu – A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.
Deed of Trust – A transaction where real property is given as security for a debt. The borrower, the trustee and the lender are all parties of this transaction. The borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender. If the borrower pays the debt as agreed, the deed of trust becomes void. If the borrower defaults in the debt payment, the trustee may sell the property at a public sale, under the terms and conditions of the deed of trust.
Default – A failure to make payments on a timely basis, and/or a failure to comply with other conditions.
Depreciation – A decline in the value of a property; the opposite of appreciation.
Down Payment – A portion of the purchase price paid for, in cash, by the buyer.
Earnest Money – Deposit money given to the seller by a potential buyer upon the signing of an agreement of sale to indicate the buyer’s intention. If the sale goes through, earnest money is applied against the down payment. If a sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides otherwise.
Equal Credit Opportunity Act (ECOA) – A federal law requiring 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.
Escrow Account – The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.
Fair Credit Reporting Act – A consumer protection law regulating the disclosure of consumer credit reports by consumer / credit reporting agencies. Established procedures for correcting mistakes on one’s credit record.
Federal Deposit Insurance Corporation (FDIC) – Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation (FSLIC).
Fee Simple – The greatest possible interest a person hold in real
Federal Housing Administration (FHA) – A division of the Department of Housing and Urban Development (HUD). The FHA’s main activity is to insure residential mortgage loans made by private lenders, and to set standards for construction and underwriting. FHA does not lend money, nor does it plan or construct housing.
Federal Home Loan Mortgage Corporation or “Freddie Mac” (FHLMC) – A private corporation authorized by Congress, which later became an independent, stockholder-owned government corporation. Freddie Mac promotes the flow of funds into housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market.
Federal National Mortgage Association or “Fannie Mae” (FNMA) – A government sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA, VA and conventional mortgages.
Finance Charge – The total dollar amount a loan will cost, including all interest payments for the life of the loan, any interest paid at closing, origination fee and any other charges paid to the lender and/or broker.
Foreclosure – The process by which a property may be sold when a mortgage is in default.
Gift Letter – A letter or affidavit indicating that a portion of the down payment is supplied by the borrower’s relatives or friends in the form of a gift, which does not have to be repaid.
Good Faith Estimate (GFE) – The estimate of charges a borrower is likely to incur in connection with a loan closing.
Grantee – The buyer or recipient of deed.
Grantor – The seller or provider of deed.
Gross Monthly Income – The total dollar amount a borrower earns per month, excluding any taxes or expenses.
Hazard Insurance – Insurance protecting both homeowner and lender against physical damages to a property from fire, wind, vandalism, or other hazards.
Homeowner’s Insurance – An insurance policy combining liability coverage with hazard insurance.
(HUD) Department of Housing & Urban Development – Cabinet department responsible for the implementation and administration of government housing and urban development programs.
Interest – The fee charged for borrowing money.
Interest Rate – The percentage of a loan amount which is repaid for its use over a specified time.
Jumbo Loan (Non-Conforming Loan) – Any loan whose amount exceeds the amount eligible for purchase by Fannie Mae or Freddie Mac.
Lease – A written agreement between a property owner and a tenant stipulating conditions under which the tenant may possess real estate for a specified period of time.
Lender – An institution providing loans to borrowers.
Liabilities – Financial obligations including long-term debt, short-term debt, and any other amounts owed to others.
Lien – A legal claim against a property. Must be paid when the property is sold.
Loan – A sum of money borrowed. Generally repaid with interest.
Loan-to-Value (LTV) – The ratio of the original loan amount to the lesser of 1) the sale price or 2) the appraised value.
Lock – The period, expressed in days, during which a lender will guarantee an interest rate. Maturity – The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
Mortgage – A legal document pledging real estate to the lender as security for repayment of a loan.
Mortgage Insurance Premium – A payment made by a borrower to a lender for transmittal to HUD. This payment helps defray the cost of the FHA mortgage insurance program, and provides a reserve fund to protect lenders against loss in insured mortgage transactions.
Mortgagor – The borrower in a mortgage agreement.
Negative Amortization – A gradual increase in mortgage debt as a result of a monthly payment lower than the cost of the principal and interest due.
Net Worth – Value of all assets less total liabilities. Original Principal Balance – The total amount of principal owed on
a mortgage before payments are made.
Owner Financing – A transaction wherein a property seller provides all (or a portion) of the financing.
Owner Occupied – A property serving as the owner’s primary residence.
Points – A one-time charge by the lender to increase the yield of the loan; a point is equal to 1% of the amount of the mortgage.
Prepayment – Payment of mortgage loan, or part of it, before its due date.
Pre-Approval – Statement issued by a lender to a borrower pre-approving the loan application, which typically takes into account debt, income and savings information.
Pre-Qualification – Process of determining the dollar amount a prospective homebuyer will be eligible to borrow prior to completing a mortgage application.
Private Mortgage Insurance (PMI) – Insurance provided by non-governmental insurers protecting lenders against loss, should a borrower default. Typically charged to a borrower when the loan-to-value ratio is less than 80%.
Promissory Note – A promise, in writing, to repay a specified amount over a specified period of time.
Purchase Agreement – Agreement between the seller of real estate and a potential buyer.
Qualifying Ratios – Two ratios used to determine whether a borrower qualifies for a mortgage. The “top” or “front” ratio calculates the borrower’s monthly housing costs (principal, interest, taxes and insurance) as a percentage of monthly income. The “back” or “bottom” ratio includes housing costs as well as other monthly debt.
Realtor – A real estate broker or associate who holds active membership and/or license in a local real estate board affiliated with the National Association of Realtors.
Rescission – The cancellation or annulment of a transaction or contract by law or mutual consent.
Repayment Plan – A borrower’s arrangement to repay delinquent installments or advances.
Second Mortgage – A secondary lien subordinating to the rights of the first mortgage holders. Can be originated to replace a lender’s requirement for Mortgage Insurance for loans carrying a loan-to-value ratio less than 80%.
Secondary Market – The buying and selling of existing mortgages.
Servicer – The party who has entered into an agreement to service a loan.
Third Party Origination – A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund or package a mortgage it plans to deliver to the secondary market.
Title – The rights of ownership and possession of particular property. May refer to instruments or documents by which right of ownership is established. May also refer to an individual’s ownership interest in real estate.
Title Company – A company specializing in examining and insuring real estate taxes.
Title Insurance – Protects lenders or homeowners against loss of interest in property due to a title’s legal defects. Benefits are paid to the “named insured” in the title policy. Accordingly, the owner must purchase an “owner’s title policy” for title insurance protection.
Transfer Tax – State or local tax payable when title passes from one owner to another.
Truth-In-Lending (TIL) – A federal law requiring lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges, on a Truth-In-Lending form.