A

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Acceleration Clause
A provision in a mortgage note that gives a lender the right to demand repayment of the entire balance of the loan under certain conditions, such as the failure to make timely payments or a transfer of the property.

Additional Principal Payment
An amount paid by a borrower of more than the scheduled principal amount due. This type of payment reduces the remaining balance and shortens the term of the loan. Also called a "principal curtailment."

Adjustable rate mortgage (ARM)
A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.

Adjustment interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment. Typically one, three or five years, depending on the index.

Amortization
The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.

Annual percentage rate (APR)
The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser".

Assessment
A local tax levied against a property for a specific purpose, such as a sewer or streetlights.

Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.

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Balloon (payment) mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Buy-down
When the lender and/or the homebuilder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment.

Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's current market value.

Certificate of veteran status
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.

Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement.

Commitment
A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paper work or compliance with stated conditions.

Construction loan
A short-term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

Contract sale or deed
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional loan
A mortgage not insured by FHA or guaranteed by the VA.

Credit Report
A report documenting the credit history and current status of a borrower's credit standing.

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Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

Deed of trust
In many states, this document is used in place of a mortgage to secure the payment of a note.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Deferred interest
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA)
An independent agency of the federal government, which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Discount Point
See point.

Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.

Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

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Earnest Money Deposit
A deposit submitted with a purchase offer to show that the buyer's offer is being made in "good faith."

Easement
A right to the use of, or access to, land owned by another.

Encroachment
The intrusion onto another's property without right or permission.

Encumbrance
Any claim on a property, such as a lien, mortgage or easement.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders to make credit equally available without regard to the applicant's race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant's income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

Equity
The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

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
An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance premiums, or other charges when they are due. Sometimes referred to as an "impound" or "reserve" account.

Eviction
The legal act of removing someone from real property.

Exclusive Listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Executor
A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

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Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and specifies procedures for challenging errors on a credit record.

Fair Market Value
The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.

Fannie Mae
A New York stock exchange company. It is a public company that operates under a federal charter and is the nation's largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

Fannie Mae-Seller/Servicer
A lender that Fannie Mae has approved to sell loans to it and to service loans on Fannie Mae's behalf.

Federal Housing Administration (FHA)
An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders.

FHA-Insured Loan
A loan that is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).

First Mortgage
A mortgage that is the primary lien against a property.

First Time Home Buyer
A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.

Fixed-Rate Mortgage (FRM)
A mortgage loan in which the interest rate does not change during the entire term.

Flood Certification Fee
A fee charged by independent mapping firms to identify properties located in areas designated as flood zones.

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

Foreclosure
The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Forfeiture
The loss of money, property, rights, or privileges due to a breach of a legal obligation.

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Good Faith Estimate (GFE)
A form required by the Real Estate Settlement and Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the borrower is likely to incur in connection with the mortgage transaction.

Government Mortgage
A mortgage loan that is insured or guaranteed by a federal government entity such as the Federal Housing Administration (FHA) or guaranteed by the U. S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).

Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Popularly known as Ginnie Mae.

Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

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Hazard Insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other covered hazards or natural disasters.

Home Equity Conversion Mortgage (HECM)
A special type of mortgage-developed and insured by the Federal Housing Administration (FHA) that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Sometimes called a reverse mortgage.

Home Equity Line of Credit
A type of revolving loan, that enables a home owner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in the property.

Home Inspection
An examination of the construction, condition and internal systems of a home prior to purchase; satisfactory home inspection may be a condition of purchase.

Homeowner's Insurance
A broad form of insurance coverage that combines hazard insurance with personal liability protection and other coverage.

Homeowner's Warranty (HOW)
Insurance offered by a seller that covers certain home repairs and fixtures for a specified period of time.

Homeowners' Association
An organization of homeowners residing within a particular area whose principal purpose is to ensure the provision and maintenance of community facilities and services for the common benefit of the residents.

Housing Expense Ratio
The percentage of a borrower's gross monthly income that is devoted to housing costs.

HUD-1 Settlement Statement
A document that lists all closing costs on a real estate purchase or refinance transaction. Also known as the "closing statement" or "settlement sheet."

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Impound
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Income Property
Real estate developed or purchased to produce income, such as a rental unit.

Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Initial Interest Rate
The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the "start rate."

Installment
The regular periodic payment that a borrower agrees to make to a lender.

Installment Debt
A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).

Interest
The fee charged for borrowing money, usually expressed as an annual percentage of the principal.

Interest Accrual Rate
The percentage rate at which interest accumulates or increases on a mortgage loan.

Interest Rate Cap
For an adjustable-rate mortgage, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.

Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Investment Property
A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower's primary residence. Contrast with "second home."

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Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.

Jumbo Loan
A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac. Also called "nonconforming loan." Jumbo loans usually carry a higher interest rate.

Junior Mortgage
A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage.

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Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

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Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

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

Mortgage Broker
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.

Mortgage Insurance
Money paid to insure the mortgage amount when the down payment is less than 20 percent. See private mortgage insurance.

Mortgagee
The lender.

Mortgagor
The borrower or homeowner.

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Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

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Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.

Origination Fee
The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.

Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.

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Permanent Loan
A long-term mortgage, usually ten years or more.

PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Points (loan discount points)
Prepaid interest paid by the borrower to the lender at closing. A point is equal to 1 percent of the loan amount (e.g., 1 point on a $100,000 mortgage would cost the borrower $1,000). Generally, by paying more points at closing, the borrower reduces the interest rate of his loan, thus reducing monthly payments.

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Prepaid Expenses
Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Primary Mortgage Market
Lenders making mortgage loans directly to borrower's such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80 percent.

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Rate Caps
For an adjustable rate mortgage loan, the maximum interest rate that may be charged, either at the time of each adjustment date or over the life of the loan.

Rate Lock
An agreement in which a lender "locks in" or guarantees an interest rate for a specified period of time prior to closing. Also known as "Lock-in".

Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also, prohibits kickbacks and unearned fees in the mortgage loan business.

Real Property
Land and anything permanently affixed thereto, including buildings, fences, trees, and minerals.

Recorder
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

Recording
The filing of a lien or other legal documents in the appropriate public record.

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

Rehabilitation Mortgage
A mortgage loan made to cover the costs of repairing, improving, and sometimes acquiring an existing property.

Remaining Term
The original number of payments due on the loan minus the number of payments that have been applied.

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

Rescission
The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers may have a right to cancel certain mortgage refinance transactions within three business days after closing, or for up to three years in certain instances.

Revolving Debt
Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.

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.

Rural Housing Service (RHS)
An agency within the U.S. Department of Agriculture (USDA), which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing.

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Sale-Leaseback
A transaction in which the buyer leases the property back to the seller for a specified period of time.

Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.

Secondary Mortgage Market
The market in which mortgage loan and mortgage-backed securities are bought and sold.

Secured Loan
A loan that is backed by collateral such as a house, car, certificate of deposit, etc.

Security
The property that will be given or pledged as collateral for a loan.

Seller Take-Back
An agreement in which the seller of a property provides financing to the buyer for the home purchase. See also "Owner Financing."

Servicer
A firm that performs servicing functions, including collecting mortgage payments, paying the borrower's taxes and insurance and generally managing borrower escrow accounts.

Servicing
The tasks a lender performs to protect the mortgage investment, including the collection of mortgage payments, escrow administration, and delinquency management.

Settlement
The process of completing a loan transaction at which time the mortgage documents are signed and then recorded, funds are disbursed, and the property is transferred to the buyer (if applicable). Also called closing or escrow in different jurisdictions. See also "Closing."

Settlement Statement
A document that lists all closing costs on a real estate purchase or refinance transaction.

Single-Family Properties
One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives, and manufactured homes attached to a permanent foundation and classified as real property under applicable state law.

Soft Second Loan
A second mortgage whose payment is forgiven or is deferred until resale of the property.

Soldiers and Sailors Civil Relief Act
A federal law that restricts the enforcement of civilian debts against military personnel who may not be able to pay because of active military service.

Subordinate Financing
Any mortgage or other lien with lower priority than the first mortgage.

Survey
A precise measurement of a property by a licensed surveyor, showing legal boundaries of a property and the dimensions and location of improvements.

Sweat Equity
A borrower's contribution to the down payment for the purchase of a property in the form of labor or services rather than cash.

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Taxes and Insurance
Funds collected as part of the borrower's monthly payment and held in escrow for the payment of the borrower's state and local property taxes and insurance premiums.

Termite Inspection
An inspection to determine whether a property has termite infestation or termite damage. In many parts of the country, a home must be inspected for termites before it can be sold.

Third-Party Origination
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package a mortgage loan. See also "Mortgage Broker."

Title
A legal document evidencing a person's right to or ownership of a property.

Title Insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against losses arising from defects in the title not listed in the title report or abstract.

Title Search
A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

Trade Equity
Real Estate or assets given to the seller as part of the down payment for the property.

Transfer Tax
State or local tax payable when title to property passes from one owner to another.

Treasury Index
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 by the U.S. Treasury of Treasury bills and securities.

Truth-in-Lending
A federal law intended to promote the informed use of consumer credit by requiring disclosure about its terms and costs. Creditors are required to disclose the cost of credit as a dollar amount (the finance charge) and as an annual percentage rate (APR). Also known as Regulation Z.

Two- to Four- Family Property
A residential property that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed; a loan secured by such a property is considered to be a single-family mortgage.

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Underwriting
In mortgage lending, the process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness, ability to repay the loan, and the value of the property securing the loan.

Unsecured Loan
A loan that is not backed by collateral.

Usury
Interest charged in excess of the legal rate established by law.

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VA Guaranteed Loan
A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA). A long-term, low-or no-down payment loan restricted to individuals qualified by military service or other entitlements.

Variable Rate Mortgage (VRM)
See adjustable rate mortgage.

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.

Veterans Affairs (U.S. Department of Veterans Affairs)
A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.

W - Z

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Wraparound mortgage
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.