1003 Uniform Residential Loan Application – Is a standard form most U.S. mortgage lenders use. This form is required by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) for mortgages that they purchase from lenders.

A & D LOAN – An acquisition and development loan is a loan for the purchase of raw land for the purpose of development.

Abstract Title – A written history of the ownership of a parcel of land.

Acceleration Clause – Allows the lender to speed up the rate at which your loan comes due or to demand immediate payment of the entire outstanding balance of the loan should you default.

Account Statement – A printed or online statement displaying your monthly mortgage account activity during a statement cycle.  You will see the date your payment is posted, portion to principal and interest and if applicable escrow information.

Accrued Interest – Interest that is earned but not yet paid. 

Acknowledgment – A declaration by a notary, certifying, by way of personal knowledge or identification, the identity of a signer.

Adjustable Rate Mortgage (ARM) – Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index.  

Adjustable Rate Mortgage Disclosure – Describes the features of the Adjustable Rate Mortgage (ARM) loan which must be presented to the consumer within 3 days of application.

Adjustable Rate Mortgage Handbook (CHARM) – The consumer Handbook to Adjustable-Rate Mortgages must be presented within 3 days of application.

Adjustment Interval – In relation to an adjustable rate mortgage, it is the time between changes in the interest rate and/or the monthly payment.  This period is typically six months, one, three or five years, depending on the index chosen.

Affidavit – A sworn statement in writing.

Alienation Clause – An alienation clause is a provision in the contract signed with the lender that states that the borrower must pay the mortgage in full before the borrower can transfer the property to another person. This is also known as a due-on-sale clause.

Alternative Documentation – A method of documenting a loan file by using information such as pay stubs, W-2 forms, tax returns and bank stubs instead of waiting on verifications sent to third parties for confirmation of statements made on the application.

American Land Title Association (ALTA) – An organization of title companies specializing in Real Property Law which has standardized forms and coverage on a national basis. 

Amortization – Refers to the principal portion of the loan payment and is the loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.  A fully amortized loan will be completely paid off at the end of the loan term.

Amortization Term – The length of time it will take to pay off a mortgage loan expressed in months or years.  For example, a 15-year mortgage equates to a 180 month amortization term.

Annual Percentage Rate (APR) – An 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.  The reason for this variance is because it takes into account points and other credit costs associated with the loan. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.

Annuity – A fixed sum of money payable periodically, usually monthly or annually. These payments terminate upon the death of the designated beneficiary. Also, a right, often acquired under a life-insurance con- tract, to receive fixed payments periodically for a specified duration.

Appraisal – An estimate of the value of real property, made by a qualified professional called an “appraiser.”  

Appraisal Fee – A fee charged by a licensed certified appraiser to determine the fair market value.

Appraiser – An impartial person who estimates the value of something such as real estate.

Appreciation – An increase in an asset’s value (often because of inflation).

Arbitration – A dispute-resolution process in which the disputing parties choose one or more neutral third parties to make a final and binding decision resolving the dispute. A third party may be chosen directly by mutual agreement, or indirectly by agreeing to have an arbitration organization select the third party.

Assessed Value – The value of an asset as determined by an appraiser for tax purposes.

Assessment – Determination of the rate or amount of something, such as a tax or damages.

Assessor – An official who evaluates or makes assessments, especially for purposes of taxation.

Asset – An owned item that has value.

Assignment – The transfer of rights or property.

Assignment of Mortgage/Assigned Loan – An assignment in which a mortgage lender or borrower transfers the mortgage to a third party.

Assumption (of Mortgage or Trust Deed) – The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.  This agreement must be approved by the lender and be allowed by the note originally signed by the seller.  Assumption is not allowed by Fannie Mae, Freddie Mac or USDA. FHA and VA do allow for assumptions in certain situations.

Assumption Fee – The fee paid to a lender when an assumption takes place. It is usually paid by the purchaser.

Average Prime Offer Rate – The Average Prime Offer Rate (APOR) is an annual percentage rate that is based on average interest rates, fees, and other terms on mortgages offered to highly qualified borrowers.

Back End – This refers to the debt-to-income ratio calculated using principal, interest, taxes, insurance and consumer credit obligations divided by gross monthly income. It is expressed as a percentage.

Balance Sheet – A statement of financial position as of the statement’s date, showing the value of assets, liabilities, and stakeholder’s equity.

Balloon 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.  The minimum term for a balloon mortgage under HOEPA is five years.

Balloon Payment – The final loan payment that is typically significantly larger than the preceding regular payments. This payment concludes and pays off the loan.

Bankruptcy – A statutory procedure in which a debtor obtains financial relief and/or undergoes a judicially supervised reorganization or liquidation of their assets to assist in paying off creditors.  Chapter 11 or 13 remain on a consumer’s credit report for 7 years while a Chapter 7 remains for 10 years.

Basis Point – Basis points are used in computing and calculating the interest rate on mortgage loans in real estate transactions.  One basis point is equal to 1/100th of 1%, or 0.01%.   

Beneficiary – The entity funding the loan. This is the entity to which the loan is owed.

Blanket Mortgage – A mortgage that covers two or more properties that are pledged to support a debt.

Borrower (Mortgagor) – Someone who mortgages property.

Borrower’s Signature Authorization – A form signed by an applicant authorizing a lender to obtain and verify information and documentation from third parties that’s needed in conjunction with an application for a mortgage loan.

Bridge Loan – A short-term loan that uses the borrower’s equity to make a down payment on a new home. The Bridge Loan will be paid upon the sale of the existing home.

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

Buy-Down – When the lender and/or the home builder subsidizes 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.

Buy-Down Account for Temporary Buydowns – The account in which funds are held so they can be applied as each payment comes due for an interest rate buy-down plan.

Buyer’s Broker/Agent – A real estate broker who acts as the agent of a purchaser of real property.  Statutes in several states allow prospective buyers to retain a licensed real estate agent. In some states, a buyer’s broker is treated as the subagent of the broker with whom the owner lists property for sale and not the agent of the buyer.

Buyer’s Market – A market in which supply significantly exceeds demand typically resulting in lower prices.

Cap – The highest rate that an adjustable rate mortgage may reach. It can be expressed as the actual rate or as the amount of change allowed above the start rate. For example, a 7.99 % start rate with a 6% rate change cap would have a maximum interest rate cap of 13.99%.

Capacity – Gross income X the Debt to Income (DTI) ratio = the maximum mortgage and debt payments, the borrower can afford.

Cash Flow – The movement of cash through a business as a measure of profitability or liquidity.

Cash Out Refinance – Cash-out refinance gives the borrower a lump sum when they close their refinance loan. The loan proceeds are first used to pay off the borrower’s existing mortgage(s), including closing costs and any prepaid items (for example real estate taxes or homeowners insurance); any remaining funds are the borrower to use as they wish.

Cashier’s Check – A check drawn by a bank payable to another person. This is evidence that the payee has authorization from the bank for the amount of money represented by the check.

Certificate of Deposit – A banker’s certificate acknowledging the receipt of money and promising to repay the depositor.

Certificate of Eligibility – A certificate issued by the Department of Veterans Affairs (VA) certifying a veteran’s maximum benefits for a VA loan. This certificate is also known as the Certificate of Entitlement.

Certificate of Occupancy – A document indicating that a building complies with zoning and building ordinances and is ready to be occupied. A certificate of occupancy is often required before title can be transferred and the building occupied.

Certificate of Reasonable Value (CRV) – An appraisal issued by the Department of Veterans Affairs (VA) showing the property’s fair market value.

Certificate of Title – A document indicating the ownership of real or personal property. This document also identifies any liens or other encumbrances.

Certificate of Veteran Status – Certificate given to veterans or reservists who have served 90 days of continuous active duty (including training time), which enables veterans to obtain lower down payments on VA loans.

Certified Copy – A true copy, attested to be true by the officer holding the original. It should have a stamp and signature stating that it is a true copy.

Chain of Title – The ownership history of a piece of land, from its first owner to the present one. For the holder to have a good title, every prior negotiation must have been proper. If the necessary indorsement is missing or forged, the chain of title is broken, and no later transferee can become a holder.

Change Frequency – Change in the frequency of payment or interest rate of Adjustable Rate Mortgage (ARM).

Change Orders – A modification of the original construction plans ordered by the property owner or general contractor.

Civil Rights Act (1964) – Is a landmark civil rights and labor law in the United States that outlaw’s discrimination based on race, color, religion, sex, or national origin. It prohibits unequal application of voter registration requirements, and racial segregation in schools, employment, and public accommodations. Enacted July 2, 1964.

Clear Title – A title free from any encumbrances, burdens, or other limitations. I.e. a good and marketable title.

Clear-to-close – Loan is ready to be closed with no additional conditions.

Closing/Settlement – The final transaction between the buyer and seller whereby the conveyance of documents is concluded, and the money and property are transferred.

Closing Agent – An agent who represents the buyer and seller in the negotiation and closing of real property transactions by handling financial calculations and transfer of documents.

Closing Costs – The expenses that must be paid, usually in a lump sum at closing, apart from the purchase price and interest. These may include taxes, title insurance, and attorney’s fees and any other cost assessed to the borrower to obtain the loan.

Closing Date – The date scheduled for the signing of the documents on the real estate transaction.

Closing Statement – A written breakdown of the costs involved in the real estate transaction, usually prepared by a lender or an escrow agent.

Cloud on Title – A defect or potential defect in the owner’s title to a piece of land arising from some claim or encumbrance, such as a lien, an easement, or a court order.

Co-Borrower – Any borrower in addition to the primary borrower whose name appears on the application. The co-borrower’s along with the borrower’s income, assets, liabilities, and credit history are considered in determining creditworthiness.

Collateral – Property that is pledged as security against a debt, such as mortgage.

Combined Loan-to-Value (CLTV) – Ratio of the total mortgage liens against the property to the lesser of either the appraised value or the sales price. On a refinance, it is first mortgage and the amount of the HELOC, or second mortgage drawn divided by the value.

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.

Common Areas – The common areas (ex. hallways, lobby, workout facilities) that all tenants may use, though the landlord retains control over and responsibility for it.

Community Property State – In community property states, the assets of each spouse are considered assets of the marital unit. The assets of each partner in the relationship are not legally separate from those of the spouse. That is, while a couple is married, creditors of one spouse, with certain restrictions, can seize the assets of both spouses.

Commission – The fee paid to an agent for a transaction usually as a percentage of the money received from the transaction.

Community Reinvestment Act (1977) – Intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low to moderate income neighborhoods, consistent with safe and sound banking operations.

Comparables – An abbreviation for “comparable properties” used in the appraisal process. Comparables are properties similar to the property under consideration. They have reasonably the same size, location, and amenities and have recently been sold. They must be similar property, within one mile of the subject property and no more than 6 months old. Comparables help the appraiser determine the approximate fair market value of the subject property.

Concession – The voluntary yielding to a demand for the sake of a settlement. In a real estate transaction, something given up or agreed to in sale negotiations. For example, the sellers may agree to help pay for closing costs.

Condition – A stipulation or prerequisite in a sales contract. If a court construes a contractual term to be a condition, then its breach will entitle the party to whom it is made to be discharged from all liabilities under the contract.

Condominium – A property owned as a group, with rights to occupy specific units of the structure. An overseeing board, often referred to as a Homeowners Association, governs the property.

Conforming Loan – A mortgage loan meeting the guidelines and are under the maximum amount of loans that Fannie Mae and Freddie Mac are legally allowed to buy.

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

Consumer Credit – Credit owed by the individual, not secured by real estate.

Consumer Financial Protection Bureau (CFPB) – An independent federal agency that regulates consumer financial products and services. The Bureau protects consumers by restricting unfair and deceptive business practices, by promoting financial education, taking consumer complaints, and enforcing federal consumer-financial-protection laws. It was established by the Dodd-Frank Act in 2010 and began operating in 2011.

Consumer Reporting Agency (Credit Bureau) – An independent firm that collects, compiles and reports the credit activities of individuals which is made available, for a fee, to lenders or credit issuing entities investigating the creditworthiness of those applying for credit. Consumers may also access reports from each of the three major reporting agencies for free as required by law.

Contingency Clause – A clause within the sales contract stating that a certain condition must be met before a contract is legally binding, and the sale can close. Real estate contracts often have a specific date by which the contingency must be met. E.g. The buyer will often include an inspection contingency, requiring the home to be inspected for physical damages or problems before the sales contract is binding. The buyer will have the right to rescind if the contingency is not met.

Conventional Mortgage – A mortgage which the borrower gives a voluntary lien to the mortgage lender or other financial institution. These mortgages, which feature a fixed periodic payment and interest throughout the mortgage term, are typically used for home financing.

Conversion Clause – A provision in some ARMS, (Adjustable Rate Mortgage) that allows you to change the ARM to a fixed-rate loan at some point during the loan term.

Conveyance – The voluntary transfer of property.

Cooperative (Co-op) Project – A project in which a corporation holds the title to a residential property and sells shares to individual buyers, who then receive a proprietary lease as their title.

Counteroffer – An offeree’s new offer that varies the terms of the original offer and that ordinarily rejects and terminates the original offer. A late or defective acceptance is considered a counteroffer.

Covenants – A formal agreement or promise to perform, or not perform, a particular act.

Credit – One’s ability to borrow money.

Credit History – Information in the files of a credit bureau regarding an individual’s debts and repayments (or non-repayments).

Credit Life Insurance – Life insurance on a borrower, usually in a consumer installment loan, in which the amount due is paid if the borrower dies.

Credit 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).

Credit Report – A credit bureau’s report on a person’s financial status, usually including the approximate amounts and locations of a person’s bank accounts, charge accounts, loans, other debts, bill-paying habits, defaults, bankruptcies, foreclosures, marital status, occupation, income, and lawsuits. It may indicate a High, Middle or Low Credit Score.

Credit Score – Statistically derived numeric expression of a person’s creditworthiness that is used by lenders to assess the likelihood that the individual will repay their debts. Payment history, inquiries and credit utilization are some of the factors determining credit score.

Creditworthy – Financially sound enough that a lender will extend credit in the belief that default is unlikely.- 

DD-214 – Known as the Certificate of Release or Discharge from Active Duty, generally referred to as a “DD 214”, is a document of the United States Department of Defense, issued upon a military service member’s retirement, separation, or discharge from active duty in the Armed Forces of the United States.

Declaration Page – The front page (or pages) of a policy that specifies the named insured, address, policy period, location of premises, policy limits, and other key information that varies from insured to insured. The declarations page is also known as the information page.

Debt – Liability on a loan.

Debt-to-Income Ratio/Debt Ratio – The percentage of verified gross monthly income divided into total payments for monthly housing expenses, alimony, child support, car payments, and other installment debts, and payments on revolving or open- ended accounts such as credit cards.

Deed – A legal document that is signed and delivered from the seller to the borrower showing ownership of property.

Deed-in-Lieu of Foreclosure – Deed in which the mortgagor conveys all interest in the property to the mortgagee to satisfy a loan that is in default to avoid foreclosure proceedings. A written settlement agreement will always accompany deed-in-lieu. The lender waives the right to collect any deficiency based on a promissory note.

Deed of Reconveyance – A mortgage holder issues a deed of reconveyance to indicate that the borrower has been released from the mortgage debt. The deed transfers the property title from the lender, also called the beneficiary, to the borrower. This document is most commonly used when a mortgage has been paid in full.

Deed of Trust – A deed conveying the title of real property to a trustee as security until the grantor repays a loan. This type of deed resembles a mortgage. It is an alternative to a mortgage preferred by lenders because it is faster and cheaper to foreclose.

Default – The omission or failure to perform a legal or contractual duty, especially the failure to pay a debt when due.

Delinquent loan – Delinquency means that a borrower is behind on payments. Once a borrower
is delinquent for a certain period of time, the lender will declare the loan to be in default. The entire loan balance will become due at that time.

Department of Veterans Affairs – The cabinet-level department of the federal government responsible for operating programs that benefit veterans of military service and their families. It is headed by the Secretary of Veterans Affairs.

Depreciation – A reduction in the value or price of something, specifically, a decline in an asset’s value because of use, wear, obsolescence, or age.

Derog Letter – A letter written by the borrower giving an explanation for any derogatory credit.

Derog – This is short for derogatory and refers to negative credit items. 

Discharge – Following a completed bankruptcy proceeding, discharged debts are no longer owed or collectable. Lenders will require copies of the discharge papers on any prior bankruptcy filings.

Discount Point – A fee equal to 1 percent of the loan amount that is prepaid interest on the mortgage loan. The more points, the lower the interest rate. Discount Points can only be used to reduce the interest rate. Borrowers can typically pay from 0-4 points.

Dismissal – If a bankruptcy is dropped without being completed, a Bankruptcy Dismissal document will be needed to proceed with the loan. Either the court or the debtor can prompt the dismissal.

Dodd-Frank Wall Street Reform & Consumer Protection Act – A 2010 federal statute that promotes the financial stability of the United States by improving account-ability and transparency in the financial system. The statute affects nearly every federal agency with jurisdiction over finance or consumer protection, and nearly every segment of the financial-services industry.

Double Selling – Double selling is a type of real estate or mortgage fraud that generally involves a mortgage broker. The mortgage broker takes the information from a potential borrower in order to obtain a mortgage loan. The borrower is usually in on the mortgage fraud scam.

Down Payment – A portion of the purchase price paid in cash (or its equivalent) at the time the sale agreement is executed.

Due-on-Sale Clause – A mortgage provision that gives a lender the option to accelerate the debt if the borrower transfers any part of the mortgaged real estate without the lender’s consent.
Department of Veterans Affairs (VA)

Early Payment Default– Early Payment Default means, with respect to a Mortgage Loan, the failure of the Mortgagor to make any of the first three Monthly Payments due under the Mortgage Loan on or before its scheduled Due Date.

Earnest Money Deposit – A deposit paid (often in escrow) by a prospective buyer to show a good-faith intention to complete the transaction, and ordinarily forfeited if the buyer defaults. It is generally a percentage of the purchase price and it rarely exceeds 10 percent.

Easement – An interest in land owned by another person, consisting of the right to use or control the land, or an area above or below it, for a specific limited purpose. E.g., an ingress and egress easement for the right to access the land through the land of another. The land benefitting from an easement is called the dominant estate, while the land burdened by an easement is called the servient estate. Unlike a lease or license, an easement may last forever, but it does not give the holder the right to possess, take from, improve upon, or sell the land.
The primary recognized easements are:
• A right-of-way.
• A right of entry for any purpose relating to the dominant estate.
• A right to support of land and buildings.
• A right of light and air.
• A right to water.
• A right to do some act that would otherwise amount to a nuisance; and
• A right to place or keep something on the servient estate.

Economic Obsolescence – Obsolescence that results from external economic factors, such as decreased demand or changed governmental regulations.

Effective Interest Rate – The actual annual rate, which incorporates compounding when calculating interest, rather than the stated rate or coupon rate.

Eminent Domain – The inherent power of a governmental entity to take privately owned property and convert it to public use, subject to reasonable compensation for the taking.

Employer-Assisted Housing – A program in which an employer assists its employees in purchasing homes by helping with the down payment, closing costs, or monthly payments.

Encroachment – A fixture of a piece of property which intrudes on another’s property.

Encumbrance – A claim or liability that is attached to property and that may lessen its value, such as a lien or mortgage. An encumbrance cannot defeat the transfer of possession, but it remains after the property or right is transferred.

Entitlement – An absolute right to a benefit granted immediately upon legal requirement.

Equal Credit Opportunity Act (ECOA/Regulation B) – 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.

Equitable Mortgage – A transaction that has the intent but not the form of a mortgage, and that a court of equity will treat as a mortgage.

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

Escrow – A legal document or property delivered by a promisor to a third party to be held by that third party for a given amount of time or until the occurrence of a condition at which time the third party is to hand over the document or property to the promiser.

Escrow Account(s) – A bank account generally held in the name of the depositor and an escrow agent that is returnable to the depositor or paid to a third person on the fulfillment of specified conditions.

Escrow Agent – The third-party depositary of an escrow. An escrow holder is not a common-law agent because the holder does not act subject to the control of the parties to the escrow agreement.

Escrow Agreement – The instruction given to the third-party depositary of an escrow.

Escrow Contract – The contract among buyer, seller, and escrow holder, setting forth the rights and responsibilities of each.

Escrow Holdback – An escrow holdback is simple money set aside that assures the seller will finish agreed upon work at a later time.

Escrow Instructions – Instructions to the escrow agent giving the parameters and contingencies involved in the transaction and agreed upon by both parties.

Escrow Waiver – Request for a borrower to pay their own taxes and insurance. Escrow waivers are rarely granted with less than a 25% equity position.

Eviction – The act or process of legally dispossessing a person of land or rental property.

Exclusive Right-to-Sell Listing – The right to sell a principal’s products or to act as the seller’s real estate agent to the exclusion of all others, including the owner. The listing agreement upon which the broker gets commission even if seller is the one who sells the house during the agreement period or for a certain period thereafter.

Exclusive Agency Listing – A listing giving one agent the right to be the only person, other than the owner, to sell the property during a specified period. A listing agreement upon which the broker does not get a commission if the seller sells the property themselves.

Executor – A person named by a testator to carry out the provisions of the testator’s will.

Fair and Accurate Credit Transactions Act (FACT Act) 2003 – A 2003 amendment to the federal Fair Credit Reporting Act providing free annual credit reports to consumers and establishing measures intended to help prevent identity theft. One of the Act’s better-known and more heavily litigated provisions prohibits merchants from printing the expiration date or more than the last five digits of the card number on a point-of-sale credit card or debit card receipts.

Fair Credit Reporting Act (FCRA/Regulation V) – A 1970 federal statute that regulates disclosure and use of consumer-credit information and ensures the right of consumers to have access to and to correct their credit reports. Many states have enacted similar statutes.

Fair Housing Act (FHA) – A 1968 federal statute that prohibits discrimination based on race, sex, religion, family status, or national origin in the sale or rental of a dwelling, especially in the refusal to sell or rent.

Fair Market Value – The price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm’s-length transaction, the point at which, supply and demand intersect.

Fannie Mae/Freddie Mac Loan Limit – The loan limits as set by FHFA for Fannie Mae and Freddie Mac loans. These numbers are higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands. They change yearly.

Farmers Home Administration (FMHA) – Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Mortgage Loans – Federal Mortgage Loans are loans insured or guaranteed by the federal government. Examples are FHA, VA and USDA loans.

Federal Home Loan Mortgage Corporation (Freddie Mac/FHLMC) – A corporation that purchases both conventional conforming first mortgages from members of the Federal Reserve System and other approved banks.

Federal Housing Administration (FHA) – An agency in the U.S. Department of Housing and Urban Development responsible for facilitating FHA mortgage lending by insuring mortgage loans on houses meeting the agency’s standards. The FHA was created in 1934.

Federal National Mortgage Association (Fannie Mae/FNMA) – A privately owned and managed corporation chartered by the U.S. government that provides a secondary mortgage market for the purchase and sale of conventional conforming mortgages.

Federal Reserve System (FRS) – The central bank that sets credit and monetary policy by fixing the reserves to be maintained by depository institutions, determining the discount rate charged by Federal Reserve Banks, and regulating the amount of credit that may be extended on any security. The Federal Reserve System was established by the Federal Reserve Act of 1913. It incorporates 12 central banks supervised by a Board of Governors whose members are appointed by the President and confirmed by the Senate.

Fee Simple – An interest in land that, being the broadest property interest allowed by law, endures until the current holder dies without heirs.

FHA Mortgage – A mortgage that is insured fully or partially by the Federal Housing Administration (FHA).

FHA Mortgage Insurance – Current Federal Housing Administration (FHA) upfront mortgage insurance premiums are 1.75 percent of the loan size. If an FHA-backed mortgage is used for a purchase mortgage and your loan size is $300,000, then your upfront Mortgage Insurance Premium (MIP) will be $5,250. The renewal premium varies by FHA product, generally .85 x mortgage amount divided by 12 = the monthly premium added to the monthly payment

Finance Charge – A finance charge is a fee charged for the use of credit or the extension of existing credit. It may be a flat fee or a percentage of borrowings, with percentage-based finance charges being the most common. A finance charge is often an aggregated cost, including the cost of carrying the debt itself along with any related transaction fees, account maintenance fees or late fees charged by the lender.

Firm Commitment – A promise from a lender to make a mortgage loan.

First Mortgage – A mortgage that is senior to all other mortgages or liens on the same property.

First-Time Home Buyer – An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse. If either meets the test, they are considered first-time homebuyers.
A single parent who has only owned with a former spouse while married.

Fixed Installment – The monthly payment due on a mortgage loan which includes both principal and interest.

Fixed Period Adjustable Rate Mortgage – An adjustable rate mortgage with an initial fixed interest rate period. After the fixed interest rate expires, the interest rate starts to adjust based on an index plus a margin. The amount by which the interest rate can adjust after the fixed period is usually subject to an interest rate cap.

Fixed-Rate Mortgage (FRM) – A mortgage with an interest rate that remains the same over the life of the mortgage regardless of market conditions.

Flood Certification Fee – Fee issued to the client which covers the cost of the assessment and is included in closing costs and fees.

Flood Insurance – Insurance that indemnifies against a loss caused by a flood. This type of insurance is often sold privately but subsidized by the federal government. Maximum coverage is $250,000.

Floor – On an ARM loan, the margin is the floor and the lowest the interest rate can go over the life of the loan.

Forbearance – The act of refraining from enforcing a right, obligation, or debt. Permitting one to retain a loan of money after it has become due and payable is forbearing it. Forbearance, within the meaning of usury laws, is the giving of further time for the return of payment of money after the date upon which it became due.

Forced Placed Insurance – Lien holders will put forced place insurance onto a mortgaged property in cases where the borrower allows the coverage they were required to purchase to lapse. Lapses may be due to non-payment of premium, filing false claims, or other reasons. Forced place insurance will protect the property, the homeowner, and the lien holder. Future mortgage payments will reflect the added cost of the insurance

Foreclosure – A legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale to satisfy the unpaid debt secured by the property.

Forfeiture – A destruction or deprivation of some estate or right because of the failure to perform some contractual obligation or condition. When a condition is not likely to occur until the obligee has relied on the expected exchange by, for example, performing or preparing to perform, a non-occurrence of the condition results in the obligee’s loss of its reliance interest when the obligee loses the right to that exchange. This loss of reliance interest is often described as forfeiture.

Fraud Enforcement and Recovery Act of 2009 (FERA) – The law enhanced criminal enforcement of federal fraud laws, especially regarding financial institutions, mortgage fraud, and securities fraud or commodities fraud. Enacted May 2009.

Free and Clear – This means the property is completely paid for and has no liens attached.

Fully Amortized Mortgage – A mortgage in which the mortgagor pays the interest as well as a portion of the principal in the periodic payment. At maturity, the periodic payments will have completely repaid the loan. Also known as a self- liquidating mortgage. For example, 360 P&I payments on a 30- year loan will pay the loan in full.

Functional Obsolescence – A detraction from the property value due to the design or material being less functional than the norm.

General Contractor – Someone who contracts for the completion of an estate project, including purchasing all materials, hiring and paying subcontractors, and coordinating all the work.

General Warranty Deed – A seller promises that there are no defects in the title that arose or were created while the seller owned the property or while anyone prior to the seller owned the property.

Gift Letter – A letter to the lender from the donor stating a gift of money has been made to the buyer to purchase a specific property. The gift must come an immediate blood relative and no evidence of repayment required.

Good Faith Estimate – Gives you an estimate of the costs of the mortgage loan. A form that lists basic information about the terms of a mortgage for which the applicant has applied. If the applicant applied for a mortgage before October 3, 2015, or if the applicant is applying for a reverse mortgage or HELOC, they will receive a Good Faith Estimate (GFE).

Government Mortgage – Mortgage insured by a government entity, such as Federal Housing Administration (FHA), Veteran’s Administration (VA) or Rural Housing Service (RHS – USDA loans).

Government National Mortgage Association (Ginnie Mae/GNMA) – A federally owned corporation in the U.S. Department of Housing and Urban Development responsible for guaranteeing mortgage-backed securities composed of FHA insured or VA guaranteed mortgage loans. The Association purchases, on the secondary market, residential mortgages originated by local lenders; it then issues federally insured securities backed by these mortgages.

Grace Period – An extra period of time allowed for taking some required action (such as making payment) without incurring the usual penalty for being late. Article 9 of the Uniform Commercial Code (UCC) provides for a 20-day grace period after the collateral is received. During that time a purchase-money security interest must be perfected to have priority over any conflicting security interests.

Graduated Payment Mortgage (GPM) – A mortgage whose initial payments are lower than its later payments. The payments are intended to gradually increase, as the borrower’s income increases over time. This type of mortgage may result in negative amortization.

Gramm-Leach-Bliley Act (GLB) 1999 – Regulation P – A federal statute that repealed both parts of the Glass-Stegall Act prohibiting combinations among banking, securities, and insurance companies, as well as related conflict-of-interest provisions for such companies’ officers, directors, and employees. The Act also regulates the collection, disclosure, use, and protection of consumers’ nonpublic personal information.

Grant Deed – A Grant Deed is the most common form of title transfer deed. A Grant Deed contains warranties against prior conveyances or encumbrances.

Gross Monthly Income – The total amount of a person’s income before taxes.

Ground Rent – Rent paid by a tenant under a long-term lease for the use of undeveloped land, usually for the construction of a commercial building.

Growing-Equity Mortgage (GEM) – A mortgage that is fully amortized over a significantly shorter term than the traditional 30- year mortgage, with increasing payments each year.

Guarantee – Assumption of the liability of another’s debts in the event of default.

Guarantee Mortgage – A mortgage that is guaranteed by a third party.

Guaranty – A promise to answer for the payment of some debt, or the performance of some duty, in case of the failure of another who is liable in the first instance.

Hazard / Homeowner’s Insurance – Insurance that protects property owners against damage caused by fires, severe storms, earthquakes, or other natural events. It will also protect the borrower against liability for someone that is injured on the property. If the specific event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred.

High Cost Mortgage – In general, a high-cost mortgage is a type of loan where the loan exceeds one or more of the three thresholds. See Federal Comprehensive Textbook for the thresholds.

Higher-Priced mortgage/High Priced Mortgage – In general, a higher-priced mortgage loan is one with an annual percentage rate, or APR, higher than a benchmark rate called the Average Prime Offer Rate. The Average Prime Offer Rate (APOR) is an annual percentage rate that is based on average interest rates, fees, and other terms on mortgages offered to highly qualified borrowers. A mortgage will be considered a higher-priced mortgage loan if the APR is a certain percentage higher than the APOR depending on what type of loan the borrower has. 

Home Equity Loan – A line of bank credit given to a homeowner, using the homeowner’s equity in the home as collateral.

Home Inspection – A non-invasive visual examination of a residential dwelling, performed for a fee, which is designed to identify observed material defects within specific components of said dwelling.

Home Mortgage Disclosure Act of 1975 (HMDA/Regulation C) – This regulation provides the public loan data that can be used to assist in determining whether financial institutions are serving the housing needs of their communities, public officials in distributing public-sector investments to attract private investment to areas where it is needed, and in identifying possible discriminatory lending patterns. The regulation applies to certain financial institutions, including banks, savings associations, credit unions, and other mortgage lending institutions. Mortgage Brokers are exempt.

Home Ownership and Equity Protection Act (HOEPA) 1994 – HOEPA was enacted in 1994 as an amendment to the Truth-In-Lending Act (TILA) to address abusive practices in refinances and closed end home equity loans with high interest rates or high fees.

Homeowner’s Warranty (HOW) – A warranty and insurance program that, among other coverage, insures a new home for ten years against major structural defects. The program was developed by the Home Owners Warranty Corporation, a subsidiary of the National Association of Home Builders. Builders often provide this type of coverage and may states provide similar warranty protection by statute.

Homestead – The dwelling (house and contiguous land) of the head of the family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of the creditors. Property tax exemptions are also available in some states.

Housing and Economic Recovery Act of 2008 – The Housing and Economic Recovery Act (HERA) was created to address the subprime mortgage crisis of 2008. The Housing and Economic Recovery Act allowed the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers. In order to participate, lenders were required to write down the balances on principal loans up to 90 percent of their current appraised value.

Housing and Urban Development (HUD) – The cabinet-level department of the federal government responsible for overseeing programs that are concerned with housing needs and fair-housing opportunities, and with improving and developing the country’s communities. Established in 1965, headed by the Secretary of Housing and Urban Development.

Housing Code – A law or regulation setting standards for the construction, maintenance, occupancy, use, or appearance of buildings and dwelling units.

Housing Expenses-to-Income Ratio – A ratio comparing housing expenses to before-tax income that is used by lenders to qualify borrowers for a mortgage. The housing expense measure includes mortgage principal, interest payments, property taxes, hazard insurance, mortgage insurance, and association fees. The limit for housing is generally 28 percent of the expense-to-income ratio on manually underwritten conventional conforming loans.

HUD-1 Settlement Statement – Standard form at closing which is used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for the purpose of purchasing or refinancing real estate. This form is used only for Reverse Mortgages and HELOC’s since TRID was implemented

Hybrid Loan – It performs like a fixed and adjustable rate loan. It has a fixed rate for an initial period before turning into an Adjustable Rate Mortgage (ARM). These initial periods are offered in 3, 5, 7, or 10-year terms.

Impound – The portion of a monthly mortgage payment that is earmarked to pay property taxes and property- insurance premiums.

Income Property – Property that produces income, such as 1- 4 family rental property.

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.

Indexed Rate – Also, referred to as the Fully Indexed Rate. An interest rate charged on loans to borrowers that is calculated by taking the sum of a benchmark index and a specified margin. The indexed rate is used to calculate the interest rate on an ARM.

Individual Retirement Account (IRA) – A savings or brokerage account to which a person may contribute up to a specified amount of earned income each year. The contributions, along with any interest earned in the account, are not taxed until the money is withdrawn after a participant reaches the age of 59 1/2 (or before then, if a 10 percent penalty is paid).

Inflation – A general increase in prices coinciding with a fall in the real value of money.

Initial Interest Rate – The interest rate that applies on the first day of the loan’s term.

Inquiry – A request for a copy of your credit report by a lender or other business, often when you fill out a credit application and/or request more credit.

Insolvency – Insolvency is a term for when an individual or organization can no longer meet its financial obligations with its lender(s) as debts become due.

Insurance Binder – An insurance binder is a temporary insurance contract that offers the binder holder fully effective insurance coverage while they wait for the formal issuance, or in some cases rejection, of an insurance policy.

Installment – A periodic partial payment of a debt.

Installment Debt – A loan that is repaid by the borrower in regular installments. Installment debt is generally repaid in equal monthly payments that include interest and a portion of principal.

Interest – Interest is the charge for the privilege of borrowing money.

Interest Accrual Rate – The rate of interest that is added to the principal of a financial instrument between cash payments of that interest.

Interest Bearing – A form of interest calculation where the loan is charged at a daily or monthly rate (1/365 or 1/12 of the annual interest rate) on the current outstanding balance.

Interest Rate Buy Down Plan – Arrangement that allows the seller to deposit money to an account, from which the money is released each month to reduce the mortgagor’s monthly payments during the early years of the mortgage.

Interest Rate Ceiling (Cap) – The maximum interest rate that a financial institution can charge a borrower for an Adjustable Rate Mortgage (ARM) or loan according to the contractual terms of the mortgage loan.

Interest Rate Change Date – Date upon which the rate of interest is subject to change.

Interest Rate Floor – The minimum interest rate allowed according to the contractual terms of the mortgage loan.

Interim Financing – A short-term loan secured to cover certain major expenditures, such as construction costs, until permanent financing is obtained.

Investment Property – Any asset purchased to produce a profit, whether from income or resale.

Investor – A buyer of a security or other property who seeks to profit from it without exhausting the principal.

Joint Liability – Liability shared by two or more parties.

Joint Tenancy – A tenancy with two or more co-owners who are not spouses on the date of acquisition and have identical interests in a property with the same right of possession. A joint tenancy differs from a tenancy in common because each joint tenant has a right of survivorship to the other’s share (in some states, this right must be clearly expressed in the conveyance – otherwise, the tenancy will be presumed to be a tenancy in common).

Judgment Lien – A lien imposed on a judgment debtor’s nonexempt property. This lien gives the judgment lender the right to attach the judgment debtor’s property.

Jumbo Mortgage – A mortgage loan in a principal amount that exceeds the dollar limits for Fannie Mae, Freddie Mac or government loans.

Junior Mortgage/Junior Lien(s)/Subordinate Loan(s) – A mortgage that is subordinate to another mortgage on the same property. A junior mortgage is also known as a second lien, junior lien or subordinate loan. Common 2nd liens are HELOC’s or 2nd Mortgages.

Land Contract – An agreement between the seller and the buyer where the title is withheld until a time where the required payments have been completed.

Late Charge – An additional fee assessed on a debt when a payment is not received by the 15th of the month in which the payment is due.

Lease-Purchase Option – A rent-to-own purchase plan under which the buyer takes possession of the property with the first payment and takes ownership with the final payment. Such a lease is usually treated as an installment sale. Under a capital lease, the lessee is responsible for paying taxes and other expenses on the property.

Leasehold Estate – A kind of real estate ownership where the lessor does not hold title to the property but has use of the property subject to the terms of the lease.

Legal Description – A method of geographically locating a piece or parcel of land, which is acceptable in a court of law.

Lender (Mortgagee) – A person or entity from which money is borrowed.

Lender Credit – A lender credit is money from a mortgage lender to help cover the mortgage-related closing costs associated with the purchase of a borrower’s house. The lender may offer a borrower several thousand dollars in credit to cover most (or all) of those costs. That credit is then applied to the borrower’s mortgage

Liabilities – Financial obligations in a specified amount. Any debt including an IRS lien,

Liability Insurance – Liability insurance provides the insured party with protection against claims resulting from injuries and damage to people and/or property. Liability insurance policies cover both
legal costs and any payouts for which the insured party would be responsible if found legally liable. Intentional damage and contractual liabilities are generally not covered in these types of policies.

LIBOR – London InterBank Offered Rate. LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market.

Lien – A claim upon a piece of property for the payment or satisfaction of a debt or obligation.Lien – A legal right or interest that a lender has in another’s property. This lasts until a debt or duty that it secures is satisfied. Typically, the lender does not take possession of the property on which the lien has been obtained.

Lifetime Payment Cap – For an Adjustable Rate Mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lifetime Rate Cap – For an Adjustable Rate Mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

Liquid Asset – An asset that is readily convertible into cash, such as a marketable security, a note, or an account receivable.

Loan – An act of lending.

Loan Application Fee – A fee the buyer pays to a lender when applying for a mortgage.

Loan Committee – Generally the Underwriting process.

Loan Discount Points – Prepaid interest on the mortgage loan. The more points paid, the lower the interest rate. Typically, borrowers can pay for 0-4 points. 1% of the loan amount is a Discount Point. Discount points can only be used for the reduction of interest rate.

Loan Origination – The process by which a borrower applies for a new loan, and a lender processes that application. Origination generally includes all the steps from taking a loan application up to disbursal of funds.

Loan Origination Fee – A fee charged by a lender to cover the administrative costs of making a loan.

Loan Pool – A group of Mortgage Loans that is serviced for an Investor by the Seller or that collateralizes one or more classes of securities which is considered to be aggregated for the purposes of servicing.

Loan Risk – The rate category assigned to the loan, which estimates the probable risk of delinquency and loss in the future.

Loan Servicing/Administration – The process by which a company collects interest, principal, and escrow payments from a borrower.

Loan-to-Value Ratio (LTV) – The ratio between the amount of a mortgage loan and the value of the property pledged as security for the mortgage, usually expressed as a percentage. For example, an $80,000 loan on property worth $100,000 results in a loan-to-value ratio of 80 percent – which is usually the highest ratio that lenders will agree to without requiring the debtor to buy mortgage insurance on a conventional conforming loan

Lock – A guarantee that the lender will deliver a specific combination of interest rate and points if the mortgage closes by a specified date.

Lock-In-Rate – A mortgage application interest rate that is established and guaranteed for a specified period.

London Interbank Offered Rate (LIBOR) – A daily compilation by the British Association of the rates that major international banks charge each other for large-volume, short-term loans of Eurodollars, with monthly maturity rates calculated out to one year. These daily rates are used as the underlying interest rates for derivative contracts in currencies other than the euro.

Long Term Debt – Is any amount of outstanding debt a company holds that has a maturity of 12 months or longer.

Low-Down-Payment Feature – A feature of some mortgages that can be fixed rate or ARM loans, that helps you buy a home with a low-down payment, may require mortgage insurance over 80% LTV.

Manufactured Housing – A type of prefabricated housing that is largely assembled in factories and then transported to sites of use. They are 320 square feet or more when assembled and built on a permanent chassis designed to be used as a dwelling with or without a permanent foundation. Manufactured homes are connected to the required utilities, and have within them plumbing, heating, air-conditioning, and electrical systems.

Margin – The yield an investor wants to earn over the life of the loan. It is also the lowest the rate can go on an ARM loan.

Market Condition Addendum (Form 1004MC) – The Market Conditions Addendum (Form 1004MC) is designed to enhance the transparency of the market trends and conditions conclusions made by the appraiser.

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.

Marketable Title – A title that a reasonable buyer would accept because it appears to lack any defect and covers the entire property that the seller has purported to sell.

Material Misstatement – A material misstatement is information in the financial statements that is sufficiently incorrect that it may impact the economic decisions of someone relying on those statements.

Maturity Date – The date when a debt falls due, such as a debt on a promissory note or bond.

Mechanic’s Lien – A statutory lien that secures payment for labor or materials supplied in improving, repairing, or maintaining real or personal property.

Merged Credit Report – A credit report that contains information from at least three credit bureaus. Any duplicate entries are combined to provide a concise summary of outstanding liabilities and credit history.

Mixed Use Property – Commercial and Residential uses at the same time.

Modification – A process where the terms of a payment are modified outside the original terms of the contract agreed to by the lender and borrower.

Money Market Account – An interest-bearing account at a bank or other financial institution. Such an account usually pays interest competitive with money-market funds but allows a limited number of transactions per month.

Monthly Fixed Installment – That portion of the total monthly payment that is applied toward principal and interest. When a mortgage is negatively amortized, the monthly fixed installment does not include any amount for principal reduction and does not cover all the interest. The loan balance therefore increases instead of decreasing.

Monthly Housing Expense – The sum of a homeowner’s monthly mortgage principal and interest payments, plus, hazard insurance premiums, property taxes, and homeowner’s association fees.

Mortgage – A conveyance of title to property that is given as a voluntary lien for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms. This conveyance is a lien against the property. Also refers to the instrument specifying the terms of such a transaction. The loan on which such a transaction is based. In essence any real-property security trans- action, including a deed of trust.

Mortgage Escrow Accounts – The account set by the Lender to pay Taxes and Insurance on behalf of the Borrower.

Mortgage Banker – An individual or organization that originates real estate loans for a fee, resells them to other parties, and may service the monthly payments.

Mortgage Broker – An individual or organization that markets mortgage loans and brings lenders and borrowers together. A mortgage broker does not underwrite, fund or service mortgage loans.

Mortgage Disclosure Improvement Act (MDIA) 2008 – Enacted to ensure that consumers receive good faith estimates of Truth-In-Lending-Act (TILA) disclosures at the beginning of the application process and to provide sufficient time for consumers to review the disclosures before consummation can take place.

Mortgage Insurance (MI) – Insurance that protects the lender in the case the borrower goes into default.

Mortgage Insurance Premium (MIP) – An insurance policy used in FHA loans, ensuring the lender if the borrower goes into default and is not allowed to be cancelled during the life of the loan. The FHA assesses either an “upfront” MIP at the time of closing, or an annual MIP that is calculated every year and paid in 12 installments.

Mortgage Investor – A mortgage investor is the party that purchases mortgages from lenders. In most cases, these investors are actually government entities or government-sponsored enterprises that purchase home loans so the lender is able to continue selling new home loans.
Mortgage Lender – A mortgage lender is a bank or financial company that lends money to borrowers to purchase a home.

Mortgage Life Insurance – A form of insurance specifically designed to protect a repayment mortgage. If the policyholder were to die while the mortgage life insurance was in force, the policy would pay out a capital sum that will be just sufficient to repay the outstanding mortgage.

Mortgage Loan – A loan secured by a mortgage or deed of trust on real property.

Mortgage Note – A note evidencing a loan for which real property has been offered as security.

Mortgage Rate – The rate of interest charged by a mortgage lender.

Mortgagee – The lender.

Mortgagee Clause – A mortgagee clause is a property insurance provision granting special protection for
a mortgagee (e.g., financial institution that has an interest in the property) named in the policy that, in effect, sets up a separate contract between the insurer and the mortgagee.

Mortgagor – The borrower or homeowner.

Multifamily Mortgage – A residential mortgage on a dwelling that is designed to house more than four families, such as an apartment complex.

Multiple Listing Service (MLS) – A listing stating the agent will allow other agents to try to sell the property. Under this agreement, the original agent gives the selling agent a percentage of the commission or some other stipulated amount.

Mutual Funds – An investment company that invests its shareholders’ money in a diversified selection of securities.

Negative Amortization – Amortization means that monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.

Net Effective Income – The borrower’s gross income minus federal income tax.

Net Monthly Income – Take home pay after taxes and payroll deductions.

Net Worth – A measure of one’s wealth, usually calculated as the excess of total assets over total liabilities.

Non-Owner Occupied – A property not used as a residence by the owner of the property.

Nontraditional Mortgage – A nontraditional mortgage is any mortgage other than a 30-year fixed mortgage.

Notary Public – A person, designated by the state, which can certify the identity of a person when signing various documents.

Note – Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.

Notice of Default (NOD) – A notification given to a borrower stating that they have not made their payments by the predetermined deadline or is otherwise in default on the mortgage contract.

Obligations – Any debt, or recurring payment the borrower is obligated to pay, including mortgage payments.

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 face value of the loan.

Owner Occupied – Designation given to property used as the owner’s residence.

Owners Policy – A policy of the title insurance which protects the buyer against problems with the title.

P & I – Principal and Interest. This refers to the principal and interest portions of the monthly mortgage payment.

P & L / Profit and Loss – A statement of a businesses gross income, cost of goods, operating costs and net profit or loss.

P.I.T.I. – Principal, interest, taxes and insurance. The complete monthly cost associated with financing a property.

P.U.D. – Planned Unit Development. Property owned as a group, where individuals own the specific piece of land and structure they occupy, but also have a divided interest in a common area. A board, often referred to as a Homeowners Association, will govern the development.

Par Rate – The par rate is the interest rate where a lender will offer a loan with neither a lender credit (yield spread premium) nor require discount points paid by the borrower.

Partial Payment – A payment for less than the full amount claimed by the lender.

Payment Cap – A clause found in an Adjustable Rate Mortgage (ARM) contract that limits the possible increase in the loan’s interest rate to a certain amount each year. The cap is usually defined in terms of rate, but the dollar amount of the principal and interest payment can be capped as well.

Payment Change Date – The date when a new monthly payment amount takes effect.

Payment Shock – Payment shock is the risk that a loan’s scheduled future periodic payments may increase substantially and may cause the borrower to default on the loan. Payment shock is a risk with many popular mortgage products, including payment option adjustable-rate mortgages (ARM) and interest-only loans.

Per Diem Interest – The pro-rated amount of interest due for remaining days in a month. Calculated and paid at loan closings. Principal X Interest rate / 360 for a conventional and 365 for government = per day/diem interest.

Periodic Payment Cap – A restriction on how much payments can increase or decrease over a single adjustment period.

Permanent Loan – A long-term mortgage loan. In real estate projects, it is obtained after completion of construction, usually to repay the short-term construction loan.

Personal Property – Any movable or intangible thing that is subject to ownership and not classified as real property. Appraiser cannot give any value to personal property, nor can you lend on personal property.

Piggy Back Loan – Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.

Planned Unit Development (PUD) – A land area zoned for a single-community subdivision with flexible restrictions on residential, commercial, and public uses.

Points – A point is equal to one percent of the principal amount of a mortgage, see also Discount Points.

Power of Attorney – An instrument granting someone authority to act as agent or attorney-in-fact for the grantor. An ordinary power of attorney is revocable and automatically terminates upon the death or incapacity of the principal.

Pre-Approval – An evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend. Credit, income and assets are verified. Not a loan commitment.

Predatory Lending – Unscrupulous actions carried out by a lender to entice, induce, and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender.

Preliminary Title Report – A report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent title insurance policy.

Premium Pricing – Premium Pricing allows a buyer to choose an above-market interest rate in exchange of receiving a percentage of their loan amount back as a lender credit to be applied towards their closing costs; essentially financing their closing costs through the interest rate.

Prepaid Expenses/Prepaids – A type of asset that arises on a balance sheet because a business made payment for goods and services to be received. The three most common prepaids are property taxes, homeowner’s insurance, and mortgage interest.

Prepaid Interest – The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

Prepayment – The satisfaction of a debt or installment payment before its official due date. A prepayment can be for the entire balance or for any upcoming payment that is paid in advance of the date for which the borrower is contractually obligated to pay it.

Prepayment Penalty – A clause in a mortgage contract that says if the mortgage is prepaid within a certain time, a penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance or a certain number of months’ worth of interest. None of the agency products allow prepayment penalties.

Pre-Qualification – An initial evaluation of the credit worthiness of a potential borrower that is used to determine the estimated amount that the person can afford to borrow. Credit is looked at and income and asset information is not verified, information is based on borrower’s information, not a commitment.

Primary Mortgage Market – The national market in which mortgages are originated.

Prime Rate – The interest rate that a commercial bank holds out as its lowest rate for short-term loans to its most creditworthy borrowers (usually large corporations). This rate, which can vary slightly from bank to bank, often dictates other interest rates for various personal and commercial loans.

Principal – The amount of a debt, investment, or other fund, not including interest, earnings, or profits.

Principal, Interest, Taxes, and Insurance (PITI) – The components of a monthly mortgage payment.

Private Mortgage Insurance (PMI) – In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment, as low as 5 percent in some cases. With the smaller down payments 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 your loan’s structure. On a $75,000 house with a 10 percent down payments, 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.

Profit and Loss Statement – A financial statement that summarizes the revenues, costs, and expenses that a business incurred during a given period.

Promissory Note – A promissory note, or “promise to pay”, is a note that details money borrowed from a lender and the repayment structure. The document holds the borrower accountable for paying back the money (plus interest, if any). An agreement to borrow money with the condition that if it is not paid back to the lender then the security, which is usually an asset or property, is turned over to the lender.

Property Tax – A tax levied on the owner of the property. The tax is based on the property’s value. Local governments often impose property taxes to finance school districts, municipal projects, etc.

Purchase/Sales Agreement – A sales contract in which ownership of property is transferred from a seller to a buyer for a fixed sum at a fixed date.

Purchase Money Mortgage (PMM) – A mortgage that a buyer gives the seller when the property is conveyed to secure the unpaid balance of the purchase price.

Qualified Mortgage – a Qualified Mortgage is a category of loans that have certain, more stable features that help make it more likely that a borrower will be able to afford their loan. See the Federal Comprehensive Textbook for more information on the Qualified Mortgage Rule.

Qualifying Guidelines – criteria used to determine eligibility for a loan.

Qualifying Rate – the interest rate used in calculating the initial mortgage payment in qualifying a borrower.

Qualifying Ratios – ratio of debt to income and housing expense to income that is used by mortgage lenders to determine a borrower’s creditworthiness for certain loan amounts.

Quality Control – a process used to make sure that companies participating in the issuance of mortgages comply with all state and national laws related to those mortgages.

Quitclaim Deed – a deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Radon – A naturally occurring radioactive gas found in some buildings. In sufficient concentrations, Radon may cause health problems.

Rate Float – assumes market risk on an interest rate in the hopes that the rate will move lower or stay the same prior to closing.

Rate Lock/ Rate Lock Agreement – A lock-in or rate lock on a mortgage loan means that your interest rate won’t change between the offer and closing, as long as you close within the specified time frame and there are no changes to your application. Rate locks are typically available for 30, 45, or 60 days, and sometimes longer. Rate locks are secured by a rate lock agreement.

Ratified Sales Contract – a sales contract in which an offer has been made and accepted, and the contract has been signed and initialed by all parties involved.

Ratios – how a borrower’s liabilities including their housing expense relates to their income.

Real Estate Agent/Broker – One who is engaged on behalf of another (usually on a commission) to negotiate contracts relating to property in which he or she has no custodial or proprietary interest.

Real Estate Settlement Procedures Act (RESPA/Regulation X) – RESPA is a federal law that allows consumers to review information on known or estimated settlement costs after they complete an application and prior to and at settlement. The law requires lenders to furnish information after application only.

Real Property – Land and anything growing on, attached to, or erected on it. Real property can be either corporeal (soil and buildings) or incorporeal (easements).

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

Reclamation – The act or an instance of improving the value of economically useless land by physically changing the land, such as irrigating a desert.

Reconveyance – The restoration or return of something to a former owner or holder.

Recorder – The government official who keeps the public records affecting real property, such as deeds, liens, and judgments.

Recording – The Recording System was put in place to require the prior purchaser to record their purchase so that a subsequent purchaser can search for prior purchases to determine whether they should buy the land.

Recording Fees – money paid to the lender for recording a home sale with the local municipality, thereby making it part of the public records.

Refinance – When a business or person revises a payment schedule for repaying debt. The debt payment would be reduced because the interest rate is reduced, or the term is extended.

Rehabilitation Mortgage – A mortgage that covers the costs of rehabilitating a property. Some rehabilitation mortgages allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Remaining Term – The original term of the loan after the number of payments made has been subtracted.

Rent with Option to Buy – A contractual provision by which an owner of realty enters an agreement with another allowing the latter to rent the property upon signing the lease with the option to buy the property at the end of the lease term, usually for a reduced rate.

Repayment Plan – An arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Replacement Cost – The cost of a substitute asset that is equivalent to an asset currently held. A property is destroyed, what would the replacement cost be based on today’s costs of materials. The new asset has the same utility but may or may not be identical to the one replaced.

Request for Reconveyance – verification given by the beneficiary to the trustee that the conditions of the lien have been fulfilled and request that the lien be canceled.

Rescission – A party’s unilateral unmaking of a contract for a legally sufficient reason, such as the other party’s material breach, or a judgment rescinding the contract. Rescission allows the borrowers and owners of a property have a three (3) day period after closing to rescind (cancel) the transaction on primary owner-occupied property only.

Restriction – A limitation placed on the use or enjoyment of property.

Reverse Annuity Mortgage (RAM) – A mortgage in which the lender disburses money over a long period to provide regular income to the borrower, and in which the loan is repaid in a lump sum when the borrower dies or when the property is sold. Also known as a Reverse Mortgage or HECM loan. 

Revolving Debt – Open-ended accounts, usually with variable interest rates, pre-determined credit limits and payments that are calculated as a percentage of the unpaid balance.
Credit cards, home equity lines of credit (HELOC) and personal lines of credit are all examples of revolving debt.

Right of First Refusal – A potential buyer’s contractual right to meet the terms of a third party’s higher offer. For example, if Beth has a right of first refusal on the purchase of Sam’s house of $290,000, and if Terry offers to buy the house for $300,000, then Beth can match this offer and prevent Terry from buying it.

Right of Redemption – The right of redemption, in the law of real property, is the right of a debtor whose real property has been foreclosed upon and sold to reclaim that property if they are able to come up with the money to repay the amount of the debt.

Rural Housing Service (RHS) – An agency in the U.S. Department of Agriculture responsible for making or guaranteeing loans for rural housing.

S.I. / Statement of Information -T he form the customer fills out for the title company giving further identification of the customer. This allows the title company to eliminate debts and liens owed by people with similar names.

Sale-Leaseback – The sale of property on the understanding, or with the express option, that the seller may lease the property from the buyer, usually immediately after the sale.

Satisfaction of Mortgage – The complete payment of a mortgage. Also, can refer to a discharge signed by the mortgagee or mortgage holder indicating that the property subject to the mortgage is released or that the mortgage debt has been paid and the mortgage conditions have been fully satisfied.

Schedule C – Schedule C (Form 1040) is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor on a borrower’s tax return.

Second Mortgage – A mortgage which is entered after the primary loan. Called a second due to it being in second lien position to the first mortgage. See also Secondary Financing.

Secondary Financing – Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a “piggyback” loan.

Section 203(k) Loans – Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.

Secure and Fair Enforcement Act (SAFE Act) 2008 – Designed to enhance consumer protection and reduce fraud through the setting of minimum standards for the licensing and registration of state-licensed mortgage loan originators. Mortgage loan originators who work for an insured depository or its owned or controlled subsidiary that is regulated by a federal banking agency, or for an institution regulated by the Farm Credit Administration, are registered. All non-financial mortgage loan originators are registered and licensed by the states.

Secured Loan – A loan that is secured by property. Also known as a collateral loan.

Security– Collateral given or pledged to guarantee the fulfillment of an obligation, especially that a lender will be repaid (usually with interest) any money or credit extended to a debtor.

Seller Carry Back– When a seller acts as the bank or lender and carries a second mortgage on the subject property, which the buyer pays down each month.

Seller Take-Back – When a seller wants to close a sale of real estate but the buyer is not yet able to fully fund the purchase, the parties can close the sale with the seller taking from the buyer a purchase money note and mortgage in lieu of an all-cash payment.

Service Members Civil Relief Act – Offers protections for service members, and sometimes their family members. Examples include: reduced interest rates, postponement of foreclosures, deferred income taxes, eviction prevention, protection against default judgments, postponed civil court matters, protection for small-business owners, termination of lease agreements, prevention of repossession of property, life insurance coverage protection, and suspension of professional liability insurance. This Act protects active-duty service members, including National Guard and reserve members, who have been activated by the federal government. Many of these protections extend to the family of service members.

Service Relief Premium (SRP) – The payment received by a mortgage lender, such as a bank or retail mortgage lender (mortgage banker), on the sale of a closed mortgage loan in a secondary mortgage market transaction.

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

Servicing Transfer– A servicer can transfer the servicing rights for a loan to another servicer. This is called a servicing transfer. See information in the Federal Comprehensive Textbook on Transfer of Servicing.

Shared Appreciation Mortgage (SAM) – A mortgage in which a borrower receives a below-market interest rate in return for which a 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 mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Silent Second– Describes a fraudulent scheme where house sellers accept second mortgages as part of a sale transaction, without the full knowledge of the first mortgage lender. The “silence” refers to the absence of full disclosure to the first mortgage lender.

Simple Interest/Daily Simple Interest – The interest paid on the principal only and not on accumulated interest.

Single-Family Properties – An individual, freestanding, unattached dwelling unit, typically built on a lot larger than the structure itself, also includes attached properties that are for single families

Soft Second Loan– A loan in which its entirety, or a portion of it, can be forgiven or deferred for a period by the lender when certain conditions are met.

Sole Proprietorship– The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

Special Warranty Deed – Seller promises that there were no defects in title that arose or were created while seller owned the property. This does not make promises about defects arising while someone prior to the seller owned the property.

Standard Payment Calculation – The method used to determine the monthly payment required to repay the remaining balance of a mortgage, in substantially equal installments over the remaining term of the mortgage, at the current interest rate.

State Financing Agency – State-chartered authorities established to help meet the affordable housing needs of the residents of their states. Although they vary widely in characteristics such as their relationship to state government, most HFAs are independent entities that operate under the direction of a board of directors appointed by each state’s governor. They administer a wide range of affordable housing and community development programs.

Statute of Frauds – The requirement that certain kinds of contracts be memorialized in writing and signed by the party to be charged, with sufficient content to evidence the contract.

Step Rate Mortgage – A loan which allows for gradual interest rate increase during the first few years of the loan.

Submission – This refers to a complete loan application package submitted for approval to the underwriting department.

Subordinate Financing – Debt that ranks behind the first secured lender and means that the secured lenders will be paid back before subordinate debt holders.

Subordination Agreement – The agreement detailing the contingencies of subordination, filed with the county recorder. If a lien holder agrees to accept a lien position after that of a later recorded lien.

Subsidized Second Mortgage – An alternative financing option for low- and moderate-income households.

Substitution of Trustee – A document, filed by the beneficiary, which changes the trustee on a particular trust deed.

Surety Bond – A bond which insures against harm to a party (usually the lender or owner) by a lien still attached to the property. This is usually used when the original deed was lost or the beneficiary cannot be located.

Survey – A measurement of land prepared by a registered land surveyor showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

Suspended – The underwriter cannot yet approve or deny the loan. More information is required.

Sweat Equity – Financial equity created on a property by the owner’s labor in improving the property.

Tenants in Common – An interest in real property by two or more individuals without the rights of survivorship.

Title – A document that gives evidence of an individual’s ownership of real or personal property.

Title Insurance – An insurance policy protecting the lender and/or the buyer.  Any claim arising from a lien other than that disclosed in the title report is payable by the title insurance company to the lender or buyer.

Title Search – An examination of municipal records to determine the current and past legal ownership of a property. This search is typically completed by a title insurance company. 

Trust Deed – The Trust Deed attaches the note as a lien on the property. This is the document which conveys the ability to collect from the proceeds of the property.

Truth-in-Lending – A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan, also known as a TIL.

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

VA – Department of Veterans Affairs

VA Funding Fee – An upfront premium paid on a VA-backed loan determined by first or subsequent use of your VA loan benefits and how much down payment you are contributing.  This fee typically ranges from 0.5 – 3.6%.

VA Mortgage Loan – A loan with 0% down payment guaranteed by the Department of Veterans Affairs.  Restricted to individuals qualified by military service or other entitlements and their surviving spouses.

Variable rate – An upfront an interest rate that may fluctuate / adjust during the loan term.  The rate usually adjusts due to changes in an index. 

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.

Verification of Mortgage (VOM) – Documentation of a borrower’s mortgage payment history that is often required when applying for a loan. In mortgage lending, the VOM is also used to verify the existing balance and monthly payments, and to check for any late payments on the account.

Verification of Rent (VOR) – A form used in mortgage lending to verify rent paid and and any late payments.

Wraparound – this results when an existing assumable loan is combined with a new loan, thus 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.

Zoning – the division of a city or county into zones specifying the uses allowable for the real property in these areas.