Adjustable-Rate Mortgage (ARM)
A mortgage in which the interest changes periodically, according
to corresponding fluctuations in an index. All ARMs are tied
The date the interest rate changes on an adjustable-rate
The loan payment consists of a portion which will be applied
to pay the accruing interest on a loan, with the remainder being
applied to the principal. Over time, the interest portion decreases
as the loan balance decreases, and the amount applied to principal
increases so that the loan is paid off (amortized) in the specified
A table which shows how much of each payment will be applied
toward principal and how much toward interest over the life
of the loan. It also shows the gradual decrease of the loan
balance until it reaches zero.
Annual Percentage Rate (APR)
This is not the note rate on your loan. It is a value created
according to a government formula intended to reflect the true
annual cost of borrowing, expressed as a percentage. It works
sort of like this, but not exactly, so only use this as a guideline:
deduct the closing costs from your loan amount, then using your
actual loan payment, calculate what the interest rate would
be on this amount instead of your actual loan amount. You will
come up with a number close to the APR. Because you are using
the same payment on a smaller amount, the APR is always higher
than the actual not rate on your loan.
The form used to apply for a mortgage loan, containing
information about a borrower’s income, savings, assets,
debts, and more.
A written justification of the price paid for a property,
primarily based on an analysis of comparable sales of similar
An opinion of a property's fair market value, based on an
appraiser's knowledge, experience, and analysis of the property.
Since an appraisal is based primarily on comparable sales, and
the most recent sale is the one on the property in question,
the appraisal usually comes out at the purchase price.
An individual qualified by education, training, and experience
to estimate the value of real property and personal property.
Although some appraisers work directly for mortgage lenders,
most are independent.
The increase in the value of a property due to changes in
market conditions, inflation, or other causes.
The valuation placed on property by a public tax assessor
for purposes of taxation.
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property
for taxation purposes.
Items of value owned by an individual. Assets that can
be quickly converted into cash are considered "liquid assets." These
include bank accounts, stocks, bonds, mutual funds, and
so on. Other assets include real estate, personal property,
owed to an individual by others.
When ownership of your mortgage is transferred from one
company or individual to another, it is called an assignment.
A mortgage that can be assumed by the buyer when a home
is sold. Usually, the borrower must "qualify" in order
to assume the loan.
The term applied when a buyer assumes the seller’s mortgage.
A mortgage loan that requires the remaining principal balance
be paid at a specific point in time. For example, a loan may
be amortized as if it would be paid over a thirty year period,
but requires that at the end of the tenth year the entire remaining
balance must be paid.
The final lump sum payment that is due at the termination
of a balloon mortgage.
By filing in federal bankruptcy court, an individual or
individuals can restructure or relieve themselves of debts
and liabilities. Bankruptcies are of various types,
but the most
common for an individual seem to be a "Chapter 7 No Asset" bankruptcy
which relieves the borrower of most types of debts. A borrower
cannot usually qualify for an "A" paper loan for a
period of two years after the bankruptcy has been discharged
and requires the re-establishment of an ability to repay
bill of sale
A written document that transfers title to personal property.
For example, when selling an automobile to acquire funds which
will be used as a source of down payment or for closing costs,
the lender will usually require the bill of sale (in addition
to other items) to help document this source of funds.
A mortgage in which you make payments every two weeks instead
of once a month. The basic result is that instead of making
twelve monthly payments during the year, you make thirteen.
The extra payment reduces the principal, substantially reducing
the time it takes to pay off a thirty year mortgage. Note: there
are independent companies that encourage you to set up bi-weekly
payment schedules with them on your thirty year mortgage. They
charge a set-up fee and a transfer fee for every payment. Your
funds are deposited into a trust account from which your monthly
payment is then made, and the excess funds then remain in the
trust account until enough has accrued to make the additional
payment which will then be paid to reduce your principle. You
could save money by doing the same thing yourself, plus you
have to have faith that once you transfer money to them that
they will actually transfer your funds to your lender.
Usually refers to the daily buying and selling of thirty
year treasury bonds. Lenders follow this market intensely because
as the yields of bonds go up and down, fixed rate mortgages
do approximately the same thing. The same factors that affect
the Treasury Bond market also affect mortgage rates at the same
time. That is why rates change daily, and in a volatile market
can and do change during the day as well.
Not used much anymore, bridge loans are obtained by those
who have not yet sold their previous property, but must close
on a purchase property. The bridge loan becomes the source of
their funds for the down payment. One reason for their fall
from favor is that there are more and more second mortgage lenders
now that will lend at a high loan to value. In addition, sellers
often prefer to accept offers from buyers who have already sold
Broker has several meanings in different situations. Most
Realtors are "agents" who work under a "broker." Some
agents are brokers as well, either working form themselves
or under another broker. In the mortgage industry, broker
usually refers to a company or individual that does not
for the loans themselves, but broker loans to larger lenders
or investors. (See the Home Loan Library that discusses
the different types of lenders). As a normal definition,
a broker is anyone who acts as an agent, bringing two
for any type of transaction and earns a fee for doing
Usually refers to a fixed rate mortgage where the interest
rate is "bought down" for a temporary period, usually
one to three years. After that time and for the remainder of
the term, the borrower’s payment is calculated at the
note rate. In order to buy down the initial rate for the temporary
payment, a lump sum is paid and held in an account used to supplement
the borrower’s monthly payment. These funds usually come
from the seller (or some other source) as a financial incentive
to induce someone to buy their property. A "lender funded
buydown" is when the lender pays the initial lump sum.
They can accomplish this because the note rate on the loan (after
the buydown adjustments) will be higher than the current market
rate. One reason for doing this is because the borrower may
get to "qualify" at the start rate and can qualify
for a higher loan amount. Another reason is that a borrower
may expect his earnings to go up substantially in the
near future, but wants a lower payment right now.
Similar to the acceleration clause.
Adjustable Rate Mortgages have fluctuating interest rates,
but those fluctuations are usually limited to a certain
amount. Those limitations may apply to how much the
loan may adjust
over a six month period, an annual period, and over the
life of the loan, and are referred to as "caps." Some
ARMs, although they may have a life cap, allow the interest
fluctuate freely, but require a certain minimum payment
which can change once a year. There is a limit on how
much that payment
can change each year, and that limit is also referred
to as a cap.
When a borrower refinances his mortgage at a higher amount
than the current loan balance with the intention of pulling
out money for personal use, it is referred to as a "cash
out refinance. " (top)
certificate of deposit
A time deposit held in a bank which pays a certain amount
of interest to the depositor. (top)
certificate of deposit index
One of the indexes used for determining interest rate changes
on some adjustable rate mortgages. It is an average of what
banks are paying on certificates of deposit. (top)
Certificate of Eligibility
A document issued by the Veterans Administration that
certifies a veteran’s eligibility for a VA loan.(top)
Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property being
bought with a VA loan, the Veterans Administration issues a
chain of title
An analysis of the transfers of title to a piece of property
over the years.
A title that is free of liens or legal questions as to ownership
of the property.
This has different meanings in different states. In some
states a real estate transaction is not consider "closed" until
the documents record at the local recorders office. In others,
the "closing" is a meeting where all of the documents
are signed and money changes hands.
Closing costs are separated into what are called "non-recurring
closing costs" and "pre-paid items." Non-recurring
closing costs are any items which are paid just once as a result
of buying the property or obtaining a loan. "Pre-paids" are
items which recur over time, such as property taxes and
homeowners insurance. A lender makes an attempt to estimate
the amount of
non-recurring closing costs and prepaid items on the Good
Faith Estimate which they must issue to the borrower within
of receiving a home loan application.
See Settlement Statement.
cloud on title
Any conditions revealed by a title search that adversely
affect the title to real estate. Usually clouds on title cannot
be removed except by deed, release, or court action.
IAn additional individual who is both obligated on the loan
and is on title to the property.
In a home loan, the property is the collateral. The borrower
risks losing the property if the loan is not repaid according
to the terms of the mortgage or deed of trust.
When a borrower falls behind, the lender contacts them
in an effort to bring the loan current. The loan goes
to "collection." As
part of the collection effort, the lender must mail and
record certain documents in case they are eventually
required to foreclose
on the property.
Most salespeople earn commissions for the work that they
do and there are many sales professionals involved in each transaction,
including Realtors, loan officers, title representatives, attorneys,
escrow representative, and representatives for pest companies,
home warranty companies, home inspection companies, insurance
agents, and more. The commissions are paid out of the charges
paid by the seller or buyer in the purchase transaction. Realtors
generally earn the largest commissions, followed by lenders,
then the others.(top)
common area assessments
In some areas they are called Homeowners Association Fees.
They are charges paid to the Homeowners Association by the owners
of the individual units in a condominium or planned unit development
(PUD) and are generally used to maintain the property and common
Those portions of a building, land, and amenities owned
(or managed) by a planned unit development (PUD) or condominium
project's homeowners' association (or a cooperative project's
cooperative corporation) that are used by all of the unit owners,
who share in the common expenses of their operation and maintenance.
Common areas include swimming pools, tennis courts, and other
recreational facilities, as well as common corridors of buildings,
parking areas, means of ingress and egress, etc.
An unwritten body of law based on general custom in England
and used to an extent in some states.
In some states, especially the southwest, property acquired
by a married couple during their marriage is considered to be
owned jointly, except under special circumstances. This is an
outgrowth of the Spanish and Mexican heritage of the area.
Recent sales of similar properties in nearby areas and
used to help determine the market value of a property.
to as "comps."
A type of ownership in real property where all of the owners
own the property, common areas and buildings together, with
the exception of the interior of the unit to which they have
title. Often mistakenly referred to as a type of construction
or development, it actually refers to the type of ownership.
Changing the ownership of an existing building (usually
a rental project) to the condominium form of ownership.
A condominium project that has rental or registration desks,
short-term occupancy, food and telephone services, and daily
cleaning services and that is operated as a commercial hotel
even though the units are individually owned. These are often
found in resort areas like Hawaii.
A short-term, interim loan for financing the cost of construction.
The lender makes payments to the builder at periodic intervals
as the work progresses.
A condition that must be met before a contract is legally
binding. For example, home purchasers often include a contingency
that specifies that the contract is not binding until the purchaser
obtains a satisfactory home inspection report from a qualified
An oral or written agreement to do or not to do a certain
Refers to home loans other than government loans (VA and
IAn adjustable-rate mortgage that allows the borrower to
change the ARM to a fixed-rate mortgage within a specific time.
A type of multiple ownership in which the residents of a
multiunit housing complex own shares in the cooperative corporation
that owns the property, giving each resident the right to occupy
a specific apartment or unit.
cost of funds index (COFI)
One of the indexes that is used to determine interest
rate changes for certain adjustable-rate mortgages.
It represents the weighted-average cost of savings, borrowings, and
of the financial institutions such as banks and savings & loans,
in the 11th District of the Federal Home Loan Bank.
An agreement in which a borrower receives something of value
in exchange for a promise to repay the lender at a later date.
A record of an individual's repayment of debt. Credit histories
are reviewed my mortgage lenders as one of the underwriting
criteria in determining credit risk.
A person to whom money is owed.
A report of an individual's credit history prepared by a
credit bureau and used by a lender in determining a loan applicant's
An organization that gathers, records, updates, and stores
financial and public records information about the payment records
of individuals who are being considered for credit.
An amount owed to another.
The legal document conveying title to a property.
Short for "deed in lieu of foreclosure," this conveys
title to the lender when the borrower is in default and
wants to avoid foreclosure. The lender may or may not
activities if a borrower asks to provide a deed-in-lieu.
Regardless of whether the lender accepts the deed-in-lieu,
and non-repayment of debt will most likely show on a credit
history. What a deed-in-lieu may prevent is having the
to a foreclosure being recorded and become a matter of public
deed of trust
Some states, like California, do not record mortgages. Instead,
they record a deed of trust which is essentially the same thing.
Failure to make the mortgage payment within a specified
period of time. For first mortgages or first trust deeds, if
a payment has still not been made within 30 days of the due
date, the loan is considered to be in default.
Failure to make mortgage payments when mortgage payments
are due. For most mortgages, payments are due on the first
day of the month. Even though they may not charge a "late fee" for
a number of days, the payment is still considered to be
late and the loan delinquent. When a loan payment is
more than 30
days late, most lenders report the late payment to one
or more credit bureaus.
A sum of money given in advance of a larger amount being
expected in the future. Often called in real estate as
money deposit. "
A decline in the value of property; the opposite of appreciation.
Depreciation is also an accounting term which shows the declining
monetary value of an asset and is used as an expense to reduce
taxable income. Since this is not a true expense where money
is actually paid, lenders will add back depreciation expense
for self-employed borrowers and count it as income.
In the mortgage industry, this term is usually used in
only in reference to government loans, meaning FHA and
Discount points refer to any "points" paid in addition
to the one percent loan origination fee. A "point" is
one percent of the loan amount.
The part of the purchase price of a property that the buyer
pays in cash and does not finance with a mortgage.
A provision in a mortgage that allows the lender to demand
repayment in full if the borrower sells the property that serves
as security for the mortgage.
earnest money deposit
A deposit made by the potential home buyer to show that
he or she is serious about buying the house.
A right of way giving persons other than the owner access
to or over a property.
An appraiser’s estimate of the physical condition of a
building. The actual age of a building may be shorter
or longer than its
The right of a government to take private property for public
use upon payment of its fair market value. Eminent domain is
the basis for condemnation proceedings.
An improvement that intrudes illegally on another’s property.
Anything that affects or limits the fee simple title to
a property, such as mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors
to make credit equally available without discrimination based
on race, color, religion, national origin, age, sex, marital
status, or receipt of income from public assistance programs.
A homeowner's financial interest in a property. Equity is
the difference between the fair market value of the property
and the amount still owed on its mortgage and other liens.
An item of value, money, or documents deposited with a third
party to be delivered upon the fulfillment of a condition. For
example, the earnest money deposit is put into escrow until
delivered to the seller when the transaction is closed.
Once you close your purchase transaction, you may have
an escrow account or impound account with your lender.
the amount you pay each month includes an amount above
what would be required if you were only paying your
interest. The extra money is held in your impound account
(escrow account) for the payment of items like property
taxes and homeowner’s
insurance when they come due. The lender pays them with
your money instead of you paying them yourself.
Once each year your lender will perform an "escrow analysis" to
make sure they are collecting the correct amount of money
for the anticipated expenditures.
The use of escrow funds to pay real estate taxes, hazard
insurance, mortgage insurance, and other property expenses as
they become due.
The ownership interest of an individual in real property.
The sum total of all the real property and personal property
owned by an individual at time of death.
The lawful expulsion of an occupant from real property.
examination of title
The report on the title of a property from the public records
or an abstract of the title.
A written contract that gives a licensed real estate agent
the exclusive right to sell a property for a specified time.
A person named in a will to administer an estate. The
court will appoint an administrator if no executor is
named. "Executrix" is
the feminine form. (
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure
of consumer credit reports by consumer/credit reporting agencies
and establishes procedures for correcting mistakes on one's
fair market value
The highest price that a buyer, willing but not compelled
to buy, would pay, and the lowest a seller, willing but not
compelled to sell, would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally
chartered, shareholder-owned company that is the nation's largest
supplier of home mortgage funds. For a discussion of the roles
of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see
Fannie Mae's Community Home Buyer's Program
An income-based community lending model, under which mortgage
insurers and Fannie Mae offer flexible underwriting guidelines
to increase a low- or moderate-income family's buying power
and to decrease the total amount of cash needed to purchase
a home. Borrowers who participate in this model are required
to attend pre-purchase home-buyer education sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development
(HUD). Its main activity is the insuring of residential mortgage
loans made by private lenders. The FHA sets standards for construction
and underwriting but does not lend money or plan or construct
The greatest possible interest a person can have in real
fee simple estate
An unconditional, unlimited estate of inheritance that represents
the greatest estate and most extensive interest in land that
can be enjoyed. It is of perpetual duration. When the real estate
is in a condominium project, the unit owner is the exclusive
owner only of the air space within his or her portion of the
building (the unit) and is an owner in common with respect to
the land and other common portions of the property.
A mortgage that is insured by the Federal Housing Administration
(FHA). Along with VA loans, an FHA loan will often be referred
to as a government loan.
A lender’s agreement to make a loan to a specific borrower
on a specific property.
The mortgage that is in first place among any loans recorded
against a property. Usually refers to the date in which loans
are recorded, but there are exceptions.
A mortgage in which the interest rate does not change during
the entire term of the loan.
Personal property that becomes real property when attached
in a permanent manner to real estate.
Insurance that compensates for physical property damage
resulting from flooding. It is required for properties located
in federally designated flood areas.
The legal process by which a borrower in default under a
mortgage is deprived of his or her interest in the mortgaged
property. This usually involves a forced sale of the property
at public auction with the proceeds of the sale being applied
to the mortgage debt.
An employer-sponsored investment plan that allows individuals
to set aside tax-deferred income for retirement or emergency
purposes. 401(k) plans are provided by employers that are private
corporations. 403(b) plans are provided by employers that are
not for profit organizations.
Some administrators of 401(k)/403(b) plans allow for loans
against the monies you have accumulated in these plans. Loans
against 401K plans are an acceptable source of down payment
for most types of loans.
government loan (mortgage)
A mortgage that is insured by the Federal Housing Administration
(FHA) or guaranteed by the Department of Veterans Affairs (VA)
or the Rural Housing Service (RHS). Mortgages that are not government
loans are classified as conventional loans.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department
of Housing and Urban Development (HUD). Created by Congress
on September 1, 1968, GNMA performs the same role as Fannie
Mae and Freddie Mac in providing funds to lenders for making
home loans. The difference is that Ginnie Mae provides funds
for government loans (FHA and VA)
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
Insurance coverage that in the event of physical damage
to a property from fire, wind, vandalism, or other hazards.
Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what
makes this type of mortgage unique is that instead of making
payments to a lender, the lender makes payments to you. It
enables older home owners to convert the equity they have
in their homes into cash, usually in the form of monthly
payments. Unlike traditional home equity loans, a borrower
does not qualify on the basis of income but on the value
of his or her home. In addition, the loan does not have to
be repaid until the borrower no longer occupies the property.
home equity line of credit
A mortgage loan, usually in second position, that allows
the borrower to obtain cash drawn against the equity of his
home, up to a predetermined amount.
A thorough inspection by a professional that evaluates the
structural and mechanical condition of a property. A satisfactory
home inspection is often included as a contingency by the
A nonprofit association that manages the common areas of
a planned unit development (PUD) or condominium project.
In a condominium project, it has no ownership interest in
the common elements. In a PUD project, it holds title to
the common elements.
An insurance policy that combines personal liability insurance
and hazard insurance coverage for a dwelling and its contents.
A type of insurance often purchased by homebuyers that will
cover repairs to certain items, such as heating or air conditioning,
should they break down within the coverage period. The buyer
often requests the seller to pay for this coverage as a condition
of the sale, but either party can pay.
HUD median income
Median family income for a particular county or metropolitan
statistical area (MSA), as estimated by the Department of
Housing and Urban Development (HUD).
HUD-1 settlement statement
A document that provides an itemized listing of the funds
that were paid at closing. Items that appear on the statement
include real estate commissions, loan fees, points, and
initial escrow (impound) amounts. Each type of expense
goes on a
specific numbered line on the sheet. The totals at the
bottom of the HUD-1 statement define the seller's net
the buyer's net payment at closing. It is called a HUD1
because the form is printed by the Department of Housing
Development (HUD). The HUD1 statement is also known as
statement " or "settlement
A form of ownership or taking title to property which means
each party owns the whole property and that ownership is
not separate. In the event of the death of one party, the
survivor owns the property in its entirety.
A decision made by a court of law. In judgments that require
the repayment of a debt, the court may place a lien against
the debtor's real property as collateral for the judgment's
A type of foreclosure proceeding used in some states that
is handled as a civil lawsuit and conducted entirely under
the auspices of a court. Other states use non-judicial foreclosure.
A loan that exceeds Fannie Mae’s and Freddie Mac’s
loan limits, currently at $227,150. Also called a nonconforming
loan. Freddie Mac and Fannie Mae loans are referred to as
The penalty a borrower must pay when a payment is made a
stated number of days. On a first trust deed or mortgage,
this is usually fifteen days.
A written agreement between the property owner and a tenant
that stipulates the payment and conditions under which the
tenant may possess the real estate for a specified period
of time. [Top]
A way of holding title to a property wherein the mortgagor
does not actually own the property but rather has a recorded
long-term lease on it. [Top]
An alternative financing option that allows home buyers
to lease a home with an option to buy. Each month's rent
payment may consist of not only the rent, but an additional
amount which can be applied toward the down payment on an
already specified price.
A property description, recognized by law, that is sufficient
to locate and identify the property without oral testimony.
A term which can refer to the institution making the loan
or to the individual representing the firm. For example,
loan officers are often referred to as "lenders."
A person's financial obligations. Liabilities include long-term
and short-term debt, as well as any other amounts that are
owed to others.
Insurance coverage that offers protection against claims
alleging that a property owner's negligence or inappropriate
action resulted in bodily injury or property damage to
another party. It is usually part of a homeowner’s insurance
A legal claim against a property that must be paid off when
the property is sold. A mortgage or first trust deed is considered
For an adjustable-rate mortgage (ARM), a limit on the amount
that the enterest rate can increase or decrease over the
life of the mortgage.
line of credit
An agreement by a commercial bank or other financial institution
to extend credit up to a certain amount for a certain time
to a specified borrower.
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid
Also referred to by a variety of other terms, such as
lender, loan representative, loan "rep," account
executive, and others. The loan officer serves several
has various responsibilities: they solicit loans, they
are the representative of the lending institution, and
the borrower to the lending institution.
How a lender refers to the process of obtaining new loans.
After you obtain a loan, the company you make the payments
to is "servicing" your loan. They process payments,
send statements, manage the escrow/impound account, provide
collection efforts on delinquent loans, ensure that insurance
and property taxes are made on the property, handle pay-offs
and assumptions, and provide a variety of other services.
The percentage relationship between the amount of the loan
and the appraised value or sales price (whichever is lower).
An agreement in which the lender guarantees a specified
interest rate for a certain amount of time at a certain cost.
The time period during which the lender has guaranteed an
interest rate to a borrower.
The difference between the interest rate and the index on
an adjustable rate mortgage. The margin remains stable over
the life of the loan. It is the index which moves up and
The date on which the principal balance of a loan, bond,
or other financial instrument becomes due and payable.[Top]
merged credit report
A credit report which reports the raw data pulled from two
or more of the major credit repositories. Contrast with a
Residential Mortgage Credit Report (RMCR) or a standard factual
Occasionally, a lender will agree to modify the terms of
your mortgage without requiring you t refinance. If any changes
are made, it is called a modification.
A legal document that pledges a property to the lender as
security for payment of a debt. Instead of mortgages, some
states use First Trust Deeds.[
For a more complete discussion of mortgage banker, see "Types
of Lenders." A mortgage banker is generally assumed to
originate and fund their own loans, which are then sold
on the secondary market, usually to Fannie Mae, Freddie
Ginnie Mae. However, firms rather loosely apply this term
to themselves, whether they are true mortgage bankers or
simply mortgage brokers or correspondents.
A mortgage company that originates loans, then places those
loans with a variety of other lending institutions with whom
they usually have pre-established relationships.
The lender in a mortgage agreement.
mortgage insurance (MI)
Insurance that covers the lender against some of the losses
incurred as a result of a default on a home loan. Often
mistakenly referred to as PMI, which is actually the
name of one of
the larger mortgage insurers. Mortgage insurance is usually
required in one form or another on all loans that have
a loan-to-value higher than eighty percent. Mortgages
above 80% LTV that call themselves "No MI" are usually
a made at a higher interest rate. Instead of the borrower
paying the mortgage insurance premiums directly, they
pay a higher interest rate to the lender, which then pays
mortgage insurance themselves. Also, FHA loans and certain
first-time homebuyer programs require mortgage insurance
regardless of the loan-to-value.
mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either
to a government agency such as the Federal Housing Administration
(FHA) or to a private mortgage insurance (MI) company.
mortgage life and disability insurance
A type of term life insurance often bought by borrowers.
The amount of coverage decreases as the principal balance
declines. Some policies also cover the borrower in the event
of disability. In the event that the borrower dies while
the policy is in force, the debt is automatically satisfied
by insurance proceeds. In the case of disability insurance,
the insurance will make the mortgage payment for a specified
amount of time during the disability. Be careful to read
the terms of coverage, however, because often the coverage
does not start immediately upon the disability, but after
a specified period, sometime forty-five days.
The borrower in a mortgage agreement.[Top]
Properties that provide separate housing units for more
than one family, although they secure only a single mortgage.
Some adjustable rate mortgages allow the interest rate
to fluctuate independently of a required minimum payment.
a borrower makes the minimum payment it may not cover
all of the interest that would normally be due at the
current interest rate. In essence, the borrower is deferring the
interest payment, which is why this is called "deferred
interest." The deferred interest is added to the balance
of the loan and the loan balance grows larger instead
of smaller, which is called negative amortization.
no cash-out refinance
A refinance transaction which is not intended to put cash
in the hand of the borrower. Instead, the new balance
is caculated to cover the balance due on the current
any costs associated with obtaining the new mortgage.
Often referred to as a "rate and term refinance."
Many lenders offer loans that you can obtain at "no cost." You
should inquire whether this means there are no "lender" costs
associated with the loan, or if it also covers the other costs
you would normally have in a purchase or refinance transactions,
such as title insurance, escrow fees, settlement fees, appraisal,
recording fees, notary fees, and others. These are fees and
costs which may be associated with buying a home or obtaining
a loan, but not charged directly by the lender. Keep in mind
that, like a "no-point" loan, the interest rate will
be higher than if you obtain a loan that has costs associated
A legal document that obligates a borrower to repay a mortgage
loan at a stated interest rate during a specified period
The interest rate stated on a mortgage note.
Almost all lenders offer loans at "no points." You
will find the interest rate on a "no points" loan
is approximately a quarter percent higher than on a loan
where you pay one point.
notice of default
A formal written notice to a borrower that a default has
occurred and that legal action may be taken.
original principal balance
The total amount of principal owed on a mortgage before
any payments are made.
On a government loan the loan origination fee is one percent
of the loan amount, but additional points may be charged
which are called "discount points." One point equals
one percent of the loan amount. On a conventional loan,
the loan origination fee refers to the total number of
points a borrower pays.
A property purchase transaction in which the property seller
provides all or part of the financing.
A payment that is not sufficient to cover the scheduled
monthly payment on a mortgage loan. Normally, a lender will
not accept a partial payment, but in times of hardship you
can make this request of the loan servicing collection department.
payment change date
The date when a new monthly payment amount takes effect
on an adjustable-rate mortgage (ARM) or a graduated-payment
mortgage (GPM). Generally, the payment change date occurs
in the month immediately after the interest rate adjustment
periodic payment cap
For an adjustable-rate mortgage where the interest rate
and the minimum payment amount fluctuate independently of
one another, this is a limit on the amount that payments
can increase or decrease during any one adjustment period.
periodic rate cap
For an adjustable-rate mortgage, a limit on the amount that
the interest rate can increase or decrease during any one
adjustment period, regardless of how high or low the index
Any property that is not real property.
This stands for principal, interest, taxes and insurance.
If you have an "impounded" loan, then your monthly
payment to the lender includes all of these and probably
includes mortgage insurance as well. If you do not have
an impounded account, then the lender still calculates
this amount and uses it as part of determining your debt-to-income
A cash amount that a borrower must have on hand after making
a down payment and paying all closing costs for the purchase
of a home. The principal, interest, taxes, and insurance
(PITI) reserves must equal the amount that the borrower would
have to pay for PITI for a predefined number of months.
planned unit development (PUD)
A type of ownership where individuals actually own the building
or unit they live in, but common areas are owned jointly
with the other members of the development or association.
Contrast with condominium, where an individual actually owns
the airspace of his unit, but the buildings and common areas
are owned jointly with the others in the development or association.
A point is 1 percent of the amount of the mortgage.
power of attorney
A legal document that authorizes another person to act
on one’s behalf. A power of attorney can grant complete
authority or can be limited to certain acts and/or certain
periods of time.
A loosely used term which is generally taken to mean that
a borrower has completed a loan application and provided
debt, income, and savings documentation which an underwriter
has reviewed and approved. A pre-approval is usually done
at a certain loan amount and making assumptions about what
the interest rate will actually be at the time the loan is
actually made, as well as estimates for the amount that will
be paid for property taxes, insurance and others. A pre-approval
applies only to the borrower. Once a property is chosen,
it must also meet the underwriting guidelines of the lender.
Contrast with pre-qualification
Any amount paid to reduce the principal balance of a loan
before the due date. Payment in full on a mortgage that may
result from a sale of the property, the owner's decision
to pay off the loan in full, or a foreclosure. In each case,
prepayment means payment occurs before the loan has been
A fee that may be charged to a borrower who pays off a loan
before it is due.
This usually refers to the loan officer’s written opinion
of the ability of a borrower to qualify for a home loan,
after the loan officer has made inquiries about debt,
savings. The information provided to the loan officer may
have been presented verbally or in the form of documentation,
the loan officer may or may not have reviewed a credit report
on the borrower.
The interest rate that banks charge to their preferred customers.
Changes in the prime rate are widely publicized in the news
media and are used as the indexes in some adjustable rate
mortgages, especially home equity lines of credit. Changes
in the prime rate do not directly affect other types of mortgages,
but the same factors that influence the prime rate also affect
the interest rates of mortgage loans.
The amount borrowed or remaining unpaid. The part of the
monthly payment that reduces the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage. The
principal balance does not include interest or any other
charges. See remaining balance.
principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment on impounded
loans. Principal refers to the part of the monthly payment
that reduces the remaining balance of the mortgage. Interest
is the fee charged for borrowing money. Taxes and insurance
refer to the amounts that are paid into an escrow account
each month for property taxes and mortgage and hazard insurance.
private mortgage insurance (MI)
Mortgage insurance that is provided by a private mortgage
insurance company to protect lenders against loss if a borrower
defaults. Most lenders generally require MI for a loan with
a loan-to-value (LTV) percentage in excess of 80 percent.
A written promise to repay a specified amount over a specified
period of time.
A meeting in an announced public location to sell property
to repay a mortgage that is in default.
Planned Unit Development (PUD)
A project or subdivision that includes common property that
is owned and maintained by a homeowners' association for
the benefit and use of the individual PUD unit owners.
A written contract signed by the buyer and seller stating
the terms and conditions under which a property will be sold.
purchase money transaction
The acquisition of property through the payment of money
or its equivalent.
Calculations that are used in determining whether a borrower
can qualify for a mortgage. There are two ratios. The "top" or "front" ratio
is a calculation of the borrower’s monthly housing
costs (principle, taxes, insurance, mortgage insurance, homeowner’s
association fees) as a percentage of monthly income. The "back" or "bottom" ratio
includes housing costs as will as all other monthly debt.
A deed that transfers without warranty whatever interest
or title a grantor may have at the time the conveyance is
A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate for a specified
period of time at a specific cost.
real estate agent
A person licensed to negotiate and transact the sale of
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give
borrowers advance notice of closing costs.
Land and appurtenances, including anything of a permanent
nature such as structures, trees, minerals, and the interest,
benefits, and inherent rights thereof.
A real estate agent, broker or an associate who holds active
membership in a local real estate board that is affiliated
with the National Association of Realtors.
The public official who keeps records of transactions
that affect real property in the area. Sometimes known
as a "Registrar
of Deeds " or "County
The noting in the registrar’s office of the details of
a properly executed legal document, such as a deed, a mortgage
note, a satisfaction of mortgage, or an extension of mortgage,
thereby making it a part of the public record.
The process of paying off one loan with the proceeds from
a new loan using the same property as security.
The amount of principal that has not yet been repaid. See
The original amortization term minus the number of payments
that have been applied.
rent loss insurance
Insurance that protects a landlord against loss of rent
or rental value due to fire or other casualty that renders
the leased premises unavailable for use and as a result of
which the tenant is excused from paying rent.
An arrangement made to repay delinquent installments or
replacement reserve fund
A fund set aside for replacement of common property in a
condominium, PUD, or cooperative project -- particularly
that which has a short life expectancy, such as carpeting,
A credit arrangement, such as a credit card, that allows
a customer to borrow against a preapproved line of credit
when purchasing goods and services. The borrower is billed
for the amount that is actually borrowed plus any interest
right of first refusal
A provision in an agreement that requires the owner of a
property to give another party the first opportunity to purchase
or lease the property before he or she offers it for sale
or lease to others.
right of ingress or egress
The right to enter or leave designated premises.
right of survivorship
In joint tenancy, the right of survivors to acquire the
interest of a deceased joint tenant.
A technique in which a seller deeds property to a buyer
for a consideration, and the buyer simultaneously leases
the property back to the seller.
A mortgage that has a lien position subordinate to the first
The buying and selling of existing mortgages, usually
as part of a "pool" of mortgages.
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing,
often in combination with an assumable mortgage.
An organization that collects principal and interest payments
from borrowers and manages borrowers’ escrow accounts.
The servicer often services mortgages that have been purchased
by an investor in the secondary mortgage market.
The collection of mortgage payments from borrowers and related
responsibilities of a loan servicer.
See HUD1 Settlement Statement
A housing development that is created by dividing a tract
of land into individual lots for sale or lease.
Any mortgage or other lien that has a priority that is lower
than that of the first mortgage.
A drawing or map showing the precise legal boundaries of
a property, the location of improvements, easements, rights
of way, encroachments, and other physical features.
Contribution to the construction or rehabilitation of a
property in the form of labor or services rather than cash.
tenancy in common
As opposed to joint tenancy, when there are two or more
individuals on title to a piece of property, this type of
ownership does not pass ownership to the others in the event
A process by which a lender uses another party to completely
or partially originate, process, underwrite, close, fund,
or package the mortgages it plans to deliver to the secondary
A legal document evidencing a person's right to or ownership
of a property.
A company that specializes in examining and insuring titles
to real estate.
Insurance that protects the lender (lender's policy) or
the buyer (owner's policy) against loss arising from disputes
over ownership of a property.
A check of the title records to ensure that the seller is
the legal owner of the property and that there are no liens
or other claims outstanding.
transfer of ownership
Any means by which the ownership of a property changes
hands. Lenders consider all of the following situations
to be a
transfer of ownership: the purchase of a property "subject
to" the mortgage, the assumption of the mortgage debt
by the property purchaser, and any exchange of possession
of the property under a land sales contract or any other
land trust device.
State or local tax payable when title passes from one owner
An index that is used to determine interest rate changes
for certain adjustable-rate mortgage (ARM) plans. It is based
on the results of auctions that the U.S. Treasury holds for
its Treasury bills and securities or is derived from the
U.S. Treasury's daily yield curve, which is based on the
closing market bid yields on actively traded Treasury securities
in the over-the-counter market. [Top]
A federal law that requires lenders to fully disclose, in
writing, the terms and conditions of a mortgage, including
the annual percentage rate (APR) and other charges.
An adjustable-rate mortgage (ARM) that has one interest
rate for the first five or seven years of its mortgage term
and a different interest rate for the remainder of the amortization
two- to four-family property
A property that consists of a structure that provides living
space (dwelling units) for two to four families, although
ownership of the structure is evidenced by a single deed.
A fiduciary who holds or controls property for the benefit
A mortgage that is guaranteed by the Department of Veterans
Having the right to use a portion of a fund such as an individual
retirement fund. For example, individuals who are 100 percent
vested can withdraw all of the funds that are set aside for
them in a retirement fund. However, taxes may be due on any
funds that are actually withdrawn.
Veterans Administration (VA)
An agency of the federal government that guarantees residential
mortgages made to eligible veterans of the military services.
The guarantee protects the lender against loss and thus encourages
lenders to make mortgages to veterans.