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B
C
D
E
F
G
H I J
L
M
N
O
P Q
R
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A
Adjustable Rate Mortgage (ARM):
A mortgage that lets the lender adjust the interest rate
periodically according to a pre-selected index. Payments may go up
or down according to this adjustment.
Acceleration clause:
The lender has the right to demand payment of the entire outstanding
balance when the first monthly payment is missed. This is a
provision written into a mortgage.
Amortization:
The systematic and continuous payment, through installments, of a
mortgage
Amortization schedule:
The schedule showing the amount of each payment applied to interest
and principal and the balance remaining.
Annual Percentage Rate (APR):
The total
yearly cost of a mortgage, on an annual rate, expressed as a
percentage. It usually includes a combination of the interest rate,
a loan origination fee known as points, and certain other fees paid
to a lender to acquire a mortgage. The APR is the most meaningful
measure for comparing the cost of mortgage loans offered by
different lenders.
Application:
A form
used by a mortgage lender, either on paper or online, to record
necessary information concerning a potential mortgage.
Application Deposit:
An amount of money paid to cover expenses such as the appraisal and
credit report, during the initial mortgage processing.
Appraisal:
A
professional opinion of the market value of a property. The term
also refers to the process by which this estimate is obtained.
Appreciation:
A
rise in the value of a property due to changes in market conditions
or other causes.
Assessed
value:
The
valuation placed upon real property by a taxing authority for
purposes of taxation.
Assessment:
A charge
against a property for purposes of taxation, such as when the
property owner pays a share of the cost of community improvements
according to the valuation of the property.
Assumable
mortgage:
This
is a mortgage that can be assumed, or taken over, by the buyer when
a home is sold. This is also called “assumption”.
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Binder:
When a
buyer agrees to purchase real estate, a binder is a preliminary
agreement, secured by the payment of money.
Borrower:
A person who receives funds in the form of a loan or
mortgage, with an obligation to repay principal with interest.
Buydown:
This is a
method of reducing the interest rate on a loan by making a payment
to the lender from the seller, buyer or third party.
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Cap:
A
stipulation of an ARM determining how much the interest rate or
mortgage payments may increase or decrease.
Cash
reserve:
A
condition of some lenders that buyers have enough cash remaining
after closing to make the first two monthly mortgage payments.
Cash to Close:
Cash
that is readily available to be used to cover the down payment,
closing costs, and prepaid items of a mortgage transaction.
Certificate of Occupancy:
A certificate issued by a local building department to a builder or
renovator, indicating that the building is in proper condition to be
occupied and stating the legally permissible use of that building.
Clear
title:
A
title that has no legal questions as to who owns the property, and
that it is free of liens.
Closing:
A meeting,
sometimes called a settlement, during which the title to the
property actually changes hands, and the buyer signs the mortgage
documents and pays the closing costs
Closing
Costs:
Also called “settlement costs”, this is money paid by the borrower
to cover expenses such as an origination fee, discount points,
appraisal, credit report, title insurance, attorney's fees, a
survey, and any other expenses in connection with the closing of a
mortgage loan.
Closing
Statement:
A document used at closing that shows the funds received and paid at
the closing, including the escrow deposits for taxes, hazard
insurance, and mortgage insurance.
Co-Borrower:
Additional applicants on a loan whose income helps to qualify for a
loan and whose name appears on documents with the same legal
obligations.
Collateral:
Property (such as securities) pledged by a borrower to protect the
interests of the lender.
Commitment letter:
A
lender's written offer stating the terms, the amount of the loan,
the interest rate and any other conditions under which it agrees to
lend money to a homebuyer.
Commitment (Loan):
A binding
agreement made by the lender to the borrower to make a loan, usually
at a stated interest rate within a given period of time for a given
purpose, subject to the borrower meeting certain conditions.
Commitment
Fee (Loan):
Any fee paid by a potential borrower to a lender for the lender's
promise to lend money at a specified rate and within a given time
period.
Condominium:
A
structure of two or more units in which the homeowner holds title to
an individual dwelling unit, an undivided interest in common areas
of a multi-unit project, and sometimes the exclusive use of certain
limited common areas. The balance of the property is owned in
common by the owners of the individual units.
Contingency:
A
condition that must be met before a contract is legally binding.
Contract of Sale:
Written
contract signed by a seller and a buyer in which both parties agree
to the sale under certain specific terms and conditions. Also called
a purchase contract.
Conventional mortgage:
Any
mortgage that is not insured or guaranteed by the federal government
(such as FHA or VA).
Convertible ARM:
Under specified conditions, this is an adjustable-rate mortgage that
can be converted to a fixed-rate mortgage.
Cooperatives (Co-ops):
A
structure of two or more units in which the residents own shares in
the corporation that owns the property, giving each resident the
right to occupy a specific apartment or unit.
Counteroffer:
a
return offer made by one who has rejected an offer.
Covenant:
A
clause in a mortgage that obligates or restricts the borrower and
that, if violated, can result in foreclosure. Most commonly,
assurances set forth in a deed by the grantor or implied by law.
Credit report.
A report detailing an individual's credit history, usually prepared
by a credit bureau and used by a lender in determining a loan
applicant's creditworthiness.
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Deed: A legal
document conveying title to real property from one individual to
another.
Deed of Trust: The
document used in many states instead of a mortgage; title is
conveyed to a trustee rather than to the borrower (trustor), in
favor of the lender (beneficiary) and reconveyed upon payment in
full.
Default: The
failure to perform an obligation as agreed in a contract, such as
making a mortgage payment on a timely basis or to comply with other
requirements of a mortgage.
Delinquency:
A
loan payment that is overdue but within the period allowed before
actual default is declared.
Deposit: An amount
of money (also called earnest money) given to bind a sale of real
estate.
Depreciation:
A
decline in the value of property, perhaps brought about by age,
deterioration, functional or economic obsolescence.
Discount points:
See Points.
Down
payment:
The
initial payment of cash towards the purchase price which the buyer
pays and does not finance with a mortgage.
Due-on-sale clause:
A
stipulation in a mortgage that states that the borrower must pay the
lender in full if the borrower sells the property.
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Earnest money:
As evidence of good faith, a deposit made by the potential homebuyer
to show that he or she is serious about buying the house.
Easement:
A right of way giving persons other than the owner access to or
over a property.
Encroachment:
Physical items such as a wall, fence, building, etc., on the
property of another.
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, sex, age, marital status, receipt of
income from public assistance programs or past exercising of rights
under the Consumer Credit Protection Act.
Equity:
The difference between the market value of property and any
outstanding mortgages, loan balances or other encumbrances on the
property.
Escrow:
Funds held by the lender, set aside for payment of taxes and
possible property and mortgage insurance and other recurring charges
against real property.
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Fair Credit Reporting Act (FCRA):
When a lender turns down a potential borrower because of poor
credit, a Federal law requires the lender who is declining the loan
to inform the borrower of the source of such information.
Federal
Home Loan Mortgage Corporation:
Known as Freddie Mac, this is a corporation authorized by Congress,
which purchases residential mortgages insured by the Federal Housing
Administration (FHA) or guaranteed by the Veterans Administration
(VA) as well as conventional home mortgages. It sells participation
certificates whose principal and interest are guaranteed by FHLMC.
Federal National Mortgage Association:
Known as Fannie Mae, this is a corporation authorized by Congress to
support the secondary mortgage market. It purchases and sells
residential mortgages insured by the Federal Housing Administration
(FHA) or guaranteed by the Veterans Administration (VA) as well as
conventional home mortgages.
Finance Charge: The total dollar amount your loan will cost you, which includes your
origination fee, all interest payments during the term of the loan,
any interim interest paid at closing, and any other charges paid to
the lender or to a third party. Certain charges like the appraisal,
credit report and the title search charges are not included in the
finance charge calculation.
First
Mortgage:
The
first mortgage on a property that has priority over any subsequently
recorded
mortgages.
Fixed
Interest Rate:
An interest rate which does not fluctuate during the term of the
loan.
Flood
Insurance:
Insurance required by lenders in areas designated as potential flood
areas, protecting against loss by flood damage.
Foreclosure:
When a borrower defaults on the debt, the property mortgaged as
security for a loan is sold to pay the defaulting borrower's debt.
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Good Faith
Estimate:
An estimate, by the lender, which outlines the likely expenses to be
incurred in connection with a settlement.
Gross
Monthly Income:
Total monthly income earned before tax and other deductions.
Guaranteed
Loan:
A loan that is “backed” or guaranteed by the Federal Government,
such as Veteran's Administration or Rural Development. The guarantee
protects the lender against loss by the borrower defaulting on a
mortgage.
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Hazard
insurance:
Insurance protecting against loss to real estate from physical
damage, from fire, wind, vandalism, or other hazards.
High-Ratio
Loan:
Where the mortgage loan exceeds 80% of the sales price or appraised
value.
Homeowners' Association Dues:
The monthly or annual fees charged by a condominium or homeowners'
association for maintenance of common areas.
Homeowner's insurance:
An
insurance policy that combines personal liability coverage and
hazard insurance for a building and its contents.
Housing
Ratio:
Sometimes called the payment-to-income ratio, it’s the ratio of the
monthly housing payment (PITI) to total gross monthly income.
Homeowner's warranty:
A type of warranty or insurance, provided by the builder or seller,
that covers repairs to specified parts of a house for a specific
period of time.
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Index:
A rate to which the interest rate on an Adjustable Rate Mortgage is
tied. The interest rate may go up or down depending on whether the
index rate goes up or down.
Insured
Loans:
A loan insured by FHA or a private mortgage insurance company.
Interest:
Either a) a fee charged for borrowing money, or b) A share or right
in some property.
Interest
rate cap:
Also called a Life Cap or Life Rate, it’s how much interest rates
may increase or decrease per adjustment period or over the life of a
mortgage.
Investment
Property:
Property owned, but not occupied by the owner, with the intent of
earning income.
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Joint
tenancy:
Joint ownership by two or more persons giving each person equal
interest and equal rights in the property, including the right of
survivorship.
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Late
charge:
A
cash penalty a borrower must pay when a mortgage payment is made
after the due date.
Lease-Purchase Mortgage Loan:
Low to middle income homebuyers are able to lease a home from a
non-profit organization with an option to buy. It’s an alternative
Fannie Mae financing option.
Lien:
An
encumbrance against a property for money due, that must be paid off
when the property is sold.
Lifetime
cap:
Also called an Interest Cap, it dictates how much interest rates
may increase or decrease per adjustment period or over the life of
an Adjustable Rate Mortgage.
Loan
commitment:
Also called a Commitment letter, it’s a lender's written offer
stating the terms, the amount of the loan, the interest rate and any
other conditions under which it agrees to lend money to a homebuyer.
Loan
servicing:
The responsibility of collection of mortgage payments from
borrowers.
Loan-to-value percentage (LTV):
The
comparison between the outstanding unpaid principal of the mortgage
and the lower of the appraised value, or sales price, of the
property.
Lock-in:
A written guarantee stating that the homebuyer will receive a
specified interest rate and points to be paid at closing, provided
the loan is closed within a set period of time.
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Margin:
The number of percentage points a lender adds to the index value to
calculate the ARM interest rate at each adjustment period.
Market
Value:
The
highest price which a buyer would pay and a seller will accept, for
a property. The market value may be different from the market.
Maturity:
The end or final due date on which final payment on a mortgage must
be paid in full.
Monthly
Payment:
Consisting usually of principal, interest, taxes, and insurance,
this is the amount that must be paid each month on a mortgage loan.
Mortgage:
A legal document that pledges a property to the lender as security
for the payment of a loan.
Mortgage
banker:
A
banker that issues mortgages for resale in the secondary market.
Mortgage
broker:
An individual or company that acts as a “go-between” for borrowers
and lenders for a fee.
Mortgage
Disability Insurance:
In the event of a disability of an insured borrower for a specified
period of time, this is an insurance policy which will pay the
monthly mortgage payment.
Mortgage
Insurance:
Insurance protecting the
mortgage lender against
financial loss due to a mortgage default.
Mortgage
insurance premium (MIP):
The consideration paid by a mortgagor (borrower) to the FHA or a
private insurer for mortgage insurance.
Mortgage
Life Insurance:
In the case of a death of a covered borrower, this is a term life
insurance policy that covers the declining balance of a loan secured
by a mortgage, and is payable to the lender.
Mortgage
margin:
The
set percentage the lender adds to the index value to determine the
interest rate of an ARM.
Mortgage
note:
A
written promise to pay a sum of money at a stated interest rate
during a specified period of time, and the mortgage note is secured
by a mortgage.
Mortgage
interest rate:
The
rate of interest in effect for the monthly payments.
Mortgagee:
The
lender in a mortgage agreement.
Mortgagor:
The
borrower in a mortgage agreement.
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Negative
amortization:
This is when the monthly payments cover only part of the interest
then due. The amount of the shortfall is added to the unpaid
principal balance to create additional principle.
Non-Conforming Loan: For various reasons, including loan amount and loan characteristics,
these are loans that usually have a higher interest rate and
origination fee because they are not eligible for sale and delivery
to either Fannie Mae or Freddie Mac
Note:
A written agreement containing a promise of the signer to pay to a
named person, or bearer, a definite sum of money at a specified date
or on demand.
Notice of
default:
A formal written document to a borrower that a default has occurred
and that legal action may be taken.
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Occupancy:
Either a renter or owner who uses the property as a full-time
residence.
Origination Fee:
A fee paid to a lender for processing a loan application. Usually a
percentage of the loan amount.
Owner financing: A property purchase transaction in which the property seller
provides all or part of the financing.
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Payment
cap:
With
some adjustable-rate-mortgages, it’s a provision limiting the amount
by which a borrower's payments may increase regardless of any
interest rate increase.
PITI:
Stands
for principal, interest, taxes, and insurance - the most common
components of a monthly mortgage payment.
Planned
unit developments (PUDs):
A common property that is owned and maintained by an owners'
association for the benefit and use of the individual PUD unit
owners.
Point:
One percent of the amount of the loan.
Preliminary Title Report:
The results of a title search by a title company prior to issuing a
commitment to insure clear title.
Pre-paids:
Property expenses such as such as taxes, insurance, rent, etc, which
are paid in advance of their due date and will usually be prorated
upon sale.
Prepayment
penalty:
A
penalty fee that may be charged to a borrower who pays off a loan
before it is due.
Pre-qualification:
Determining,
in advance of a loan application, how much money a prospective
homebuyer will be eligible to borrow.
Primary
Residence:
A residence which the borrower intends to occupy as a principal
residence.
Principal:
Either
the amount borrowed (i.e. the face value of a note or mortgage) or
the remaining unpaid debt, not including interest.
Private
mortgage insurance (PMI):
Insurance
written by non-government insurers that protect lenders resulting
from a mortgage default.
Processing:
The preparation of a mortgage loan application and supporting
documentation for consideration by a lender or insurer.
Purchase
Contract (Agreement/Offer):
A written contract signed by the buyer and seller stating the terms
and conditions of the sale.
PUD: see Planned Unit Development above
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Qualifying
ratios:
The
ratio of fixed monthly expenses to gross monthly income, which
becomes the guidelines for the lender to determine how large a loan
to grant a homebuyer.
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Radon:
A
radioactive gas found in some homes that in large concentrations can
cause health problems.
Rate lock:
See
Lock-in.
Real
Property:
Land and anything that is affixed to it.
Real
estate sales professional:
A
person licensed to negotiate and transact the sale of real estate on
behalf of the property owner.
Real
Estate Settlement Procedures Act (RESPA):
A
Federal consumer protection law that requires lenders to give
borrowers information and advance notice of closing costs. It also
establishes guidelines for escrow account balances and servicing
disclosure.
Refinancing:
The
process of paying off one loan with the proceeds from a new loan
using the same property as security.
Rent with
option to buy:
See
Lease-Purchase Mortgage Loan.
Residential Mortgage Credit Report:
A report requested by your lender that utilizes information from at
least two of the three national credit bureaus and information
provided on your loan application. Also see Credit Report above.
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Satisfaction of Mortgage:
The recordable instrument issued by the lender verifying full
payment of a mortgage debt.
Second
Home:
A residence other than the borrower's primary residence, such as a
vacation or weekend home, which the borrower intends to occupy for a
portion of each year.
Second
mortgage:
A
mortgage that has a lien position secondary to the first mortgage.
Secondary
mortgage market:
The
buying and selling of existing mortgages. It is different
from the primary mortgage market where mortgages are originated.
Security:
In lending, the collateral given, deposited, or pledged to secure
the payment of a debt.
Seller-take-back:
A
written agreement where the owner of a property provides financing.
Settlement:
See
Closing.
Settlement
Services:
Closing services provided by the lender..
Settlement
sheet:
The
calculation of costs payable at closing that determines the seller's
net proceeds and the buyer's net payment.
Survey:
A
print showing the measurements of the boundaries of a parcel of
land,, the location of improvements, easements, rights of way
encroachments, and other physical features.
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Tenants-by-Entirety:
A type of joint ownership of property in which husband and wife are
co-owners with rights of survivorship.
Tenancy in
common:
A
type of joint ownership in a property without right of survivorship.
Term:
The time limit within which a loan must be repaid.
Title:
The evidence one has of right to possession of land or ownership of
a property.
Title
company:
A
company that specializes in examining and insuring titles to real
estate.
Title
Insurance:
Insurance for the lender or the buyer, against loss resulting from
defects of title to a specifically described parcel of real
property, or from disputes over ownership of property.
Title
search:
An
examination of public title records to ensure that the seller is the
legal owner of the property and that there are no liens or other
claims outstanding.
Total Debt
Ratio:
Monthly debt and housing payments divided by gross monthly income.
Transfer
tax:
State
or local tax payable when title passes from one owner to another.
Truth-in-Lending Act:
A federal law requiring a disclosure of credit terms using a
standard format.
U
V
X
Y
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Zero Point
Option:
A provision which allows the borrower to avoid the points associated
with the loan origination fee. Usually this saving is offset by a
slightly higher loan interest rate.
About The Author
David Morris is a successful
freelance writer providing tips and advice for consumers on sites
such as
mortgages,
personal loans and
equity loans. Many have
commented that his articles have made financial topics easy to
understand.
This article from "articles
for free" is reprinted with permission.
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2004 - Articles-For-Free.com
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