Glossary of Mortgage Terms

A

(ARM) Adjustable-Rate Mortgage
A mortgage that changes interest rate periodically based upon the changes in a specified index.
Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM) a.k.a. "anniversary date".
Adjustment Period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
Amortization
The repayment of a mortgage loan by scheduled payments to cover the principal and interest.
Amortization Term
The number of years or months over which a loan repayment is amortized. For a 30-year fixed-rate mortgage, the amortization term is 360 months.
Annual Percentage Rate (APR)
The cost of obtaining a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, points and origination fees.
Application
A standardized form used to supply information to a lender while applying for a mortgage. This is commonly called a 1003 Form.
Appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.
Appraiser
A person qualified by education, training, and experience to estimate the value of real estate property.
Appreciation
An increase in the value of a property due to changes in market conditions. The opposite of depreciation.
Asset
Anything of monetary value that is owned by a person. Assets include real estate property, personal property. and enforceable claims against others (including bank accounts, stocks, bonds, mutual funds. etc).
Assignment
The transfer of a mortgage from one individual to another.
Assumable Mortgage
A mortgage that can be taken over ("assumed") , under the same terms, by the buyer when a home is sold.
Assumption
The transfer of a seller's existing mortgage to a buyer.
Assumption Clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) upon the assumption of an existing mortgage.

B

Balance Sheet
A detailed financial statement showing assets, liabilities, and net worth.
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.
Before-Tax Income
Income before taxes are deducted. Also known as Gross Income.
Beneficiary
The person designated to receive the income from a trust, estate, 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 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. 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 lending that is collateralized by the borrower's present home (which is usually for sale) thus, allowing the proceeds to be used for closing on a new house before the present home is sold. Also known as a "swing loan".
Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buydown
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.

C

Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease at each anniversary date.
Capital Improvement
Any structural improvement which adds to the market value.
Cash-Out Refinance
A refinance transaction in which the borrower receives additional cash above the original loan amount that can be used for any purpose.
Certificate Of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate Of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
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 the current ownership of the property.
Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents.
Closing Costs
Expenses 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 HUD1. The final statement of costs incurred by both the buyer and the seller to close on a loan or to purchase a home.
Collateral
An asset 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 agreement.
Collection
The method 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..
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, or an agreed upon flat fee.
Commitment Letter
A formal offer by a lender stating the terms 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 Property
In some 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 single 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 to the condominium form of ownership.
Construction Loan
A short-term, interim loan for financing the cost of construction.
Consumer Reporting Agency
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 mortgage approval.
Contract
An oral or written agreement.
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 specific times after the closing.
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.
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
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.
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.

D

Debt
An amount owed to another.
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 whereby the 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 payment(s) when due according to the Note.
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
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.

E

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 and bonus, 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
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.

F

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 credit record.
Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest price a seller, willing but not compelled to sell, would accept.
Freddie Mac
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
Freddie Mac's Community Home Buyer's Program
An income-based community lending model, under which mortgage insurers and Freddie Mac 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.
Fee Simple
The greatest possible interest a person can have in real estate.
FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
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
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.

G

Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement.

H

Hazard Insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, etc. Also known as Homeowners Insurance.
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 front ratio.
HUD
The U.S. Department of Housing and Urban Development.

I

Index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. These include the 1 Year Treasury Bill, LIBOR, and the 11th District Cost of Funds (COFI).

L

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 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.

M

Margin
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.

N

Non-Conforming Loan
Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either 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.
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.

O

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 loan amount.
Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing to the buyer. Also called a Land Contract

P

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 non-government 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.

R

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
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
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.

S

Seller Carry Back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
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.

T

Tenants-In-Common
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
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.

V

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