A clause in your mortgage which allows the lender to demand payment
of the outstanding loan balance for various reasons. The most common
reasons for accelerating a loan are if the borrower defaults on
the loan or transfers title to another individual without informing
A mortgage in which the interest changes periodically, according
to corresponding fluctuations in an index. All ARMs are tied to
The date the interest rate changes
on an adjustable-rate mortgage
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 time.
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
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
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 homes nearby.
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
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property for taxation
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, and debts 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 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
The final lump sum payment that is due at the termination of a balloon
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 debt.
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
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 their property.
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 lend the money 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 parties together for any type of transaction
and earns a fee for doing so.
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 rate to 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."
A time deposit held in a bank which pays a certain amount of interest
to the depositor.
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.
A document issued by the Veterans Administration that certifies
a veteran's eligibility for a VA loan.
of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought
with a VA loan, the Veterans Administration issues a CRV.
An analysis of the transfers of title to a piece of property over
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 three days of receiving a
home loan application.
See Settlement Statement.
Any conditions revealed by a title search that adversely affects
the title to real estate. Usually clouds on title cannot be removed
except by deed, release, or court action.
An 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.
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. Also referred 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
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 home inspector.
An oral or written agreement to do or not to do a certain thing.
Refers to home loans other than government loans (VA and FHA).
An 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.
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 advances 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 creditworthiness.
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 cease foreclosure activities
if a borrower asks to provide a deed-in-lieu. Regardless of whether
the lender accepts the deed-in-lieu, the avoidance and non-repayment
of debt will most likely show on a credit history. What a deed-in-lieu
may prevent is having the documents preparatory to a foreclosure
being recorded and become a matter of public record.
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 an "earnest money
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 VA loans. Discount points refer
to any "points" paid in addition to the one percent loan
origination fee. A "point" is one percent of the loan
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.
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 effective
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.
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. This means the amount
you pay each month includes an amount above what would be required
if you were only paying your principal and 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
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.
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. (
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.
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.
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 the
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
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.
The greatest possible interest a person can have in real 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
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
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.
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
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.
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
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
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 purchaser.
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.
Median family income for a particular county or metropolitan statistical
area (MSA), as estimated by the Department of Housing and Urban
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 proceeds and the buyer's net payment at closing.
It is called a HUD-1 because the form is printed by the Department
of Housing and Urban Development (HUD). The HUD-1 statement is also
known as the "closing statement" or "settlement sheet."
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 conforming loans.
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
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
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.
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 policy.
A legal claim against a property that must
be paid off when the property is sold. A mortgage or first trust
deed is considered a lien.
For an adjustable-rate mortgage (ARM), a limit on the amount that
the interest rate can increase or decrease over the life of the
An agreement by a commercial bank or other financial institution
to extend credit up to a certain amount for a certain time to a
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is
generally repaid with interest.
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 functions
and has various responsibilities: they solicit loans, they are the
representative of the lending institution, and they represent 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
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 down.
The date on which the principal balance of
a loan, bond, or other financial instrument becomes due and payable.
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 credit report.
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 Mac, or 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 which they usually
have pre-established relationships.
The lender in a mortgage agreement.
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 the mortgage insurance
themselves. Also, FHA loans and certain first-time homebuyer programs
require mortgage insurance regardless of the loan-to-value.
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.
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
The borrower in a mortgage agreement.
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. If 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.
A refinance transaction which is not intended to put cash in the
hand of the borrower. Instead, the new balance is calculated to
cover the balance due on the current loan and 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 of time.
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.
A formal written notice to a borrower that
a default has occurred and that legal action may be taken.
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.
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 date.
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.
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 might be.
Any property that is not real
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 ratio.
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.
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.
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 fully
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, income, and savings. The information provided to the loan
officer may have been presented verbally or in the form of documentation,
and 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
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.
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.
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.
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.
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, and 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 made.
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.
A person licensed to negotiate and transact the sale of real estate.
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 Clerk."
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 principal
The original amortization term minus the number of payments that
have been applied.
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 advances.
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, furniture,
A credit arrangement, such as a credit card, that allows a customer
to borrow against a pre-approved line of credit when purchasing
goods and services. The borrower is billed for the amount that is
actually borrowed plus any interest due.
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.
of ingress or egress
The right to enter or leave designated premises.
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 mortgage.
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 HUD-1 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.
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 of death.
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 mortgage market.
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
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
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 to another.
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.
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 term.
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 that holds or controls property
for the benefit of another.
A mortgage that is guaranteed by the Department of Veterans Affairs
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.
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.