Mortgage Dictionary

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Adjustable-rate  mortgage (ARM)
A mortgage that changes interest rate periodically based upon the changes in a specified  index.

 

amortization
amortization
The repayment of a mortgage loan by installments with regular payments to cover the  principal and interest.

 

amortization term
The amount of time required to amortize the mortgage loan. The amortization term is  expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the  amortization term is 360 months.

 

annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage  insurance, and loan origination fee (points).

 

application
A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide  information regarding a prospective mortgagor and the proposed security.

 

appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.

 

appraiser (return to top)
A person qualified by education, training, and experience to estimate the value of real  property and personal property.

 

appreciation
An increase in the value of a property due to changes in market conditions or other  causes. The opposite of depreciation.

 

asset
Anything of monetary value that is owned by a person. Assets include real property,  personal property, and enforceable claims against others (including bank accounts, stocks,  mutual funds, and so on).

 

assignment
The transfer of a mortgage from one person to another.

 

assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

 

balance sheet (return to top)
A financial statement that shows assets, liabilities, and net worth as of a specific date.

 

balloon mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but  that provides for a lump sum payment to be due at the end of an earlier specified term.

 

balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.

 

bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the  payment of all debts after the surrender of all assets to a court-appointed trustee.

 

bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can  relieve the debts by transferring his or her assets to a trustee.

 

beneficiary
The person designated to receive the income or proceeds from a trust, estate, insurance policy, or a deed of trust.

 

binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a  buyer offers to purchase real estate.

 

biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks (instead of the  standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each  equal to one-half of the monthly payment that would be required if the loan were a  standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's  bank account. The result for the borrower is a substantial savings in interest.

 

blanket mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on  individual units within the project.

 

bond
An interest-bearing certificate of debt with a maturity date. An obligation of a  government or business corporation. A real estate bond is a written obligation usually  secured by a mortgage or a deed of trust.

 

breach
A violation of any legal obligation.

 

bridge loan
A form of second trust that is collateralized by the borrower's present home (which is  usually for sale) in a manner that allows the proceeds to be used for closing on a new  house before the present home is sold. Also known as "swing loan."

 

broker
A person who, for a commission or a fee, brings parties together and assists in  negotiating contracts between them.

 

buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any  party to reduce a borrower's monthly payments during the first few years of a mortgage. A  permanent buydown reduces the interest rate over the entire life of a mortgage.

 

call option (return to top)
A provision in the mortgage that gives the mortgagee the right to call the mortgage due  and payable at the end of a specified period for whatever reason.

 

cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or  mortgage payments may increase or decrease.

 

capital improvement
Any structure or component erected as a permanent improvement to real property that adds  to its value and useful life.

 

cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds  the total of the money needed to repay the existing first mortgage, closing costs, points,  and the amount required to satisfy any outstanding subordinate mortgage liens. In other  words, a refinance transaction in which the borrower receives additional cash that can be  used for any purpose.

 

certificate of title
A statement provided by an abstract company, title company, or attorney stating that the  title to real estate is legally held by the current owner.

 

chain of title
The history of all of the documents that transfer title to a parcel of real property,  starting with the earliest existing document and ending with the most recent.

 

change frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate  mortgage (ARM).

 

clear title
A title that is free of liens or legal questions as to ownership of the property.

 

closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage  documents and paying closing costs. Also called "settlement."

 

closing cost item (return to top)
A fee or amount that a home buyer must pay at closing for a single service, tax, or  product. Closing costs are made up of individual closing cost items such as origination  fees and attorney's fees. Many closing cost items are included as numbered items on the Closing Disclosure.

 

closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in  transferring ownership of a property. Closing costs normally include an origination fee,  an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title  insurance and a survey. Closing costs percentage will vary according to the area of the  country.

 

closing statement
Also referred to as the Closing Disclosure. The final statement of costs incurred to close on a loan or  to purchase a home.  A copy of this will be given to you 3 days prior to closing and at closing.

 

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 a quitclaim deed, release, or court  action.

 

collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower  risks losing the asset if the loan is not repaid according to the terms of the loan  contract.

 

collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices  to proceed with foreclosure when necessary.

 

co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature  guarantees that the loan will be repaid, because the borrower and the co-maker are equally  responsible for the repayment. See endorser.

 

commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A  commission is generally a percentage of the price of the property or loan.

 

commitment letter
A formal offer by a lender stating the terms and conditions under which it agrees to lend money to a home  buyer. Also known as a "loan commitment."

 

common areas
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.

 

Community Home Improvement Mortgage  Loan
An alternative financing option that allows low- and moderate-income home buyers to obtain  95 percent financing for the purchase and improvement of a home in need of modest repairs.  The repair work can account for as much as 30 percent of the appraised value.

 

community property (return to top)
In some western and southwestern states, a form of ownership under which property acquired  during a marriage is presumed to be owned jointly unless acquired as separate property of  either spouse.

 

comparables
An abbreviation for "comparable properties"; used for comparative purposes in  the appraisal process. Comparables are properties like the property under consideration;  they have reasonably the same size, location , and amenities and have recently been sold.  Comparables help the appraiser determine the approximate fair market value of the subject  property.

 

condominium
A real estate project in which each unit owner has title to a unit in a building, an  undivided interest in the common areas of the project, and sometimes the exclusive use of  certain limited common areas.

 

condominium conversion
Changing the ownership of an existing building (usually a rental project) to the  condominium form of ownership.

 

construction loan
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.

 

consumer reporting agency (or  credit bureau)
An organization that prepares reports that are used by lenders to determine a potential  borrower's credit history. The agency obtains data for these reports from a credit  repository as well as from other sources.

 

contingency
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 home inspector.

 

contract
An oral or written agreement to do or not to do a certain thing.

 

conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.

 

convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change  the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

 

convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under  specified conditions.

 

cooperative (co-op)
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.

 

corporate relocation
Arrangements under which an employer moves an employee to another area as part of the  employer's normal course of business or under which it transfers a substantial part or all  of its operations and employees to another area because it is relocating its headquarters  or expanding its office capacity.

 

cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate  mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and  advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

 

covenant
A clause in a mortgage that obligates or restricts the borrower and that, if violated, can  result in foreclosure.

 

credit
An agreement in which a borrower receives something of value in exchange for a promise to  repay the lender at a later date.

 

credit history (return to top )
A record of an individual's open and fully repaid debts. A credit history helps a lender  to determine whether a potential borrower has a history of repaying debts in a timely manner.

 

credit report
A report of an individual's credit history prepared by a credit bureau and used by a  lender in determining a loan applicant's creditworthiness. See merged credit report.

 

credit repository
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.

 

debt
An amount owed to another.

debt to income ratio (DTI)
The ratio of your debt monthly payment to your monthly income.
DTI = debt/income.  Normal DTI for most mortgage qualification is 38%.

deed
The legal document conveying title to a property.

deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

 

deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

 

default
Failure to make mortgage payments on a timely basis or to comply with other requirements  of a mortgage.

 

delinquency
Failure to make mortgage payments when mortgage payments are due.

 

deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure  payment or an advance of funds in the processing of a loan.

 

depreciation
A decline in the value of property; the opposite of appreciation.

 

down payment
The part of the purchase price of a property that the buyer pays in cash and does not  finance with a mortgage.

 

due-on-sale provision ( return to top)
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.

 

easement
A right of way giving persons other than the owner access to or over a property.

 

effective age
An appraiser's estimate of the physical condition of a building. The actual age of a  building may be shorter or longer than its effective age.

 

effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be  from more than one source. Salary is generally the principal source, but other income may  qualify if it is significant and stable.

 

encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages,  leases, easements, or restrictions.

 

endorser
A person who signs ownership interest over to another party. Contrast with co-maker.

 

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.

 

equity
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.

 

escrow
An item of value, money, or documents deposited with a third party to be delivered upon  the fulfillment of a condition. For example, the deposit by a borrower with the lender of  funds to pay taxes and insurance premiums when they become due, or the deposit of funds or  documents with an attorney or escrow agent to be disbursed upon the closing of a sale of  real estate.

 

escrow account
The account in which a mortgage servicer holds the borrower's escrow payments prior to  paying property expenses.
 
escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will  provide sufficient funds to pay taxes, insurance, and other bills when due.
 
escrow collections
(return to top)
Funds collected by the servicer and set aside in an escrow account to pay the borrower's  property taxes, mortgage insurance, and hazard insurance.

 

escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance,  and other property expenses as they become due.

 

escrow payment
The portion of a mortgagor's monthly payment that is held by the servicer to pay for  taxes, hazard insurance, mortgage insurance, lease payments, and other items as they  become due. Known as "impounds" or "reserves" in some states.

 

estate
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.

 

eviction
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.

 

Fair Credit  Reporting Act (return to top)
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 credit record.

 

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
A congressionally chartered, shareholder-owned company that is the nation's largest  supplier of home mortgage funds.

 

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  housing.

 

FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a  government mortgage.

 

finder's fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a  prospective borrower.

 

first mortgage
A mortgage that is the primary lien against a property.

 

fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.

 

flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is  required for properties located in federally designated flood areas.

 

foreclosure (return to top)
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.

 

fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize  the remaining balance, at the interest accrual rate, over the amortization term.

 

good faith estimate (only applies to reverse mortgages)
 An estimate of charges which a borrower is likely to incur in connection with a  settlement.

 

hazard insurance (return to top)
Insurance protecting against loss to real estate caused by fire, some natural causes,  vandalism, etc., depending upon the terms of the policy.

 

housing ratio
The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes,  and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as  the top ratio or front end ratio.

 

HUD
The U.S. Department of Housing and Urban Development.

 

index (return to top)
A published interest rate to which the interest rate on an Adjustable Rate Mortgage  (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR,  and the 11th District Cost of Funds (COFI).

interest only loan
An loan where you pay only the interest for the first 5 or 10 years of the term, and no loan principal.

Jumbo Loan
A loan where the loan amount is above the limit that Fannie Mae and Freddie Mac allow, but is otherwise a strong loan.  The current limit is $417,000 for single family homes, higher for 2-4 units, and higher in AK and HI.

 

lien
An encumbrance against property for money due, either voluntary or involuntary.
 
lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the  loan.
 
loan estimate

An estimate of charges which a borrower is likely to incur in connection with the a settlement.
 
loan to value ratio (LTV)

The ratio of the amount of your loan to the appraised value of the home. The LTV will  affect programs available to the borrower and generally, the lower the LTV the more  favorable the terms of the programs offered by lenders.

 

lock-in
A written agreement guaranteeing the home buyer a specified interest rate provided the  loan is closed within a set period of time. The lock-in also usually specifies the number  of points to be paid at closing.

 

margin (return to top)
The number of percentage points a lender adds to the index value to calculate the ARM  interest rate at each adjustment period. A representative margin would be 2.75%.

 

mortgage
A legal document that pledges a property to the lender as security for payment of a  debt

 

mortgage disability insurance
A disability insurance policy which will pay the monthly mortgage payment in the event  of a covered disability of an insured borrower for a specified period of time.

 

mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage  lender against loss incurred by a mortgage default. Usually required for loans with an LTV  of 80.01% or higher.

 

mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan.  The mortgage lender.

 

mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.

 

non-conforming loan (return to top)
Also called a jumbo loan. Conventional home mortgages not eligible for sale and  delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons,  including loan amount, loan characteristics or underwriting guidelines. Non-conforming  loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $417,000 and above.

 

note
A written agreement containing a promise of the signer to pay to a named person, or  order, or bearer, a definite sum of money at a specified date or on demand.

 

origination fee
A fee imposed by a lender to cover certain processing expenses in connection with  making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

 

owner financing (return to top)
A property purchase transaction in which the property seller provides all or part of  the financing.

 

Planned Unit  Developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels  owned in common or with reciprocal rights in one or more other parcels.

 

PITI
Principal, interest, taxes and insurance--the components of a monthly mortgage  payment.

 

points
Charges levied by the mortgage lender and usually payable at closing. One point  represents 1% of the face value of the mortgage loan.

 

prepaids
Those expenses of property which are paid in advance of their due date and will  usually be prorated upon sale, such as taxes, insurance, rent, etc.

 

prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all  of a mortgage loan in advance of schedule.

 

principal
Amount of debt, not including interest. The face value of a note or mortgage.

 

private mortgage insurance (PMI)
Insurance provided by nongovernment insurers that protects lenders against loss if a  borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with  loan-to-value (LTV) percentages greater than 80%.

 

qualifying ratios
The ratio of your fixed monthly expenses to your gross monthly income, used to  determine how much you can afford to borrow. The fixed monthly expenses would include PITI  along with other obligations such as student loans, car loans, or credit card payments.

 

rate cap
A limit on how much the interest rate can change, either at each adjustment period or  over the life of the loan.

 

rate lock-in (return to top)
 A written agreement in which the lender guarantees the borrower a specified interest rate,  provided the loan closes within a set period of time.

 

rebate
 Compensation received from a wholesale lender which can be used to cover closing costs or  as a refund to the borrower. Loans with rebates often carry higher interest rates than  loans with "points" (see above).

recasting
When you pay a large portion of additional principle towards a loan balance and the lender re-amortizes the remaining balance over the remaining loan period.  Often used during a relocation, when the sale of the old home allows the borrower to provide additional funds towards the new home and the new loan that has already closed.

 

refinancing
 The process of paying off one loan with the proceeds from a new loan using the same  property as security.

 

residential mortgage credit report  (RMCR)
 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.

 

seller carry back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.  

 

stated/no-doc income
Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.

 

survey
A print showing the measurements of the boundaries of a parcel of land, together with the  location of all improvements on the land and sometimes its area and topography.

 

tenants-in-common (return to top)
 An undivided interest in property taken by two or more persons. The interest need not be  equal. Upon death of one or more persons, there is no right of survivorship.

 

title
The evidence one has of right to possession of land.

 

title insurance
Insurance against loss resulting from defects of title to a specifically described parcel  of real property.

 

title search
An investigation into the history of ownership of a property to check for liens, unpaid  claims, restrictions or problems, to prove that the seller can transfer free and clear  ownership.

 

total debt ratio
 Monthly debt and housing payments divided by gross monthly income. Also known as  Obligations-to-Income Ratio or Back-End Ratio.

 

Truth-in-Lending Act ( return to top)
 A federal law requiring a disclosure of credit terms using a standard format. This is  intended to facilitate comparisons between the lending terms of different financial  institutions.

 

Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.