A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

• Abstract of Title: A historical summary provided by a title insurance company of all
  records affecting the title to a property.
• Acceleration Clause: Allows a lender to declare the entire outstanding balance of a
  loan immediately due and payable should a borrower violate specific loan provisions or default on the
  loan.
• Adjustable Rate Mortgage (ARM): A variable or flexible rate mortgage with an
  interest rate that varies according to the financial index it is based upon. To limit the borrower’s
  risk, the ARM may have a payment or rate cap. See also: cap.
• Amenities: Features of your home that fit your preferences and can increase the
  value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public
  transportation.
• Amortization: The liquidation of a debt by regular, usually monthly, installments
  of principal and interest. An amortization schedule is a table showing the payment amount, interest,
  principal, and unpaid balance for the entire term of the loan.
• Annual Cap: See: cap.
• Annual Percentage Rate (A.P.R.): The actual interest rate, taking into account
  points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by
  the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.
• Appraisal: An estimate of a property’s value as of a given date, determined by a
  qualified professional appraiser. The value may be based on replacement cost, the sales of comparable
  properties, or the property’s ability to produce income.
• Appreciation: A property’s increase in value due to inflation or economic factors.
• ARM (see Adjustable Rate Mortgage):
• Assessment: Charges levied against a property for tax purposes or to pay for
  municipality or association improvements such as curbs, sewers, or grounds maintenance.
• Assignment: The transfer of a contract or a right to buy property at given rates
  and terms from a mortgagee to another person.
• Assumption: An agreement between a buyer and a seller, requiring lender approval,
  where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be
  advantageous for a buyer because there are no closing costs and the loan’s interest rate may be lower
  than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise
  the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the
  loan at all.

B

• Balloon Mortgage: Mortgage with a final lump sum payment that is greater than
  preceding payments and pays the loan in full.
• Biweekly Mortgage: A loan requiring payments of principal and interest at two-week
  intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a
  biweekly mortgage is half what a monthly payment would be.
• Bond: A certificate serving as security for payment of a debt. Bonds backed by
  mortgage loans are pooled together and sold in the secondary market.
• Bridge Loan: A loan to “bridge” the gap between the termination of one mortgage and
  the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds
  from the sale of a prior home. Also known as a swing loan.
• Broker: An intermediary between the borrower and the lender. The broker may
  represent several lending sources and charges a fee or commission for services.
• Buy-down: Where the buyer pays additional discount points or makes a substantial
  down payment in return for a below-market interest rate; or the seller offers 3-2-1 interest payment
  plans or pays closing costs such as the origination fee. During times of high interest rates, buy-downs
  may induce buyers to purchase property they may not otherwise have purchased.

C

• Cap: A limit in how much an adjustable rate mortgage’s monthly payment or interest rate can
  increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an
  interest cap, a life-of-loan cap, or an annual cap.
• Certificate of Reasonable Value (CRV): A Veteran’s Administration appraisal that establishes the
  maximum VA mortgage loan amount for a specified property.
• Certificate of Title: Document rendering an opinion on the status of a property’s title based on
  public records.
• Closed-end Mortgage: A mortgage principal amount that is fixed and cannot be increased during the
  life of the loan. See also: open-end mortgage.
• Closing Costs: Costs payable by both seller and buyer at the time of settlement, when the purchase
  of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually
  include but are not limited to the following:
• Cloud: A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a
  clear title.
• Collateral: Something of value pledged as security for a loan. In mortgage lending, the property
  itself serves as collateral for a mortgage loan.
• Commitment Fee: A fee charged when an agreement is reached between a lender and a borrower for a
  loan at a specific rate and points and the lender guarantees to lock in that rate.
• Co-mortgagor: One who is individually and jointly obligated to repay a mortgage loan and shares
  ownership of the property with one or more borrowers. See also: co-signer.
• Condominium: An individually owned unit within a multi-unit building where others or the Condominium
  Owners Association share ownership of common areas such as the grounds, the parking facilities, and the
  tennis courts.
• Conforming Loan: A loan that conforms to Federal National Mortgage Association (FNMA) or Federal
  Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.
• Construction Loan: A short-term loan financing improvements to real estate, such as the building of
  a new home. The lender advances funds to the borrower as needed while construction progresses. Upon
  completion of the construction, the borrower must obtain permanent financing or pay the construction
  loan in full.
• Consumer Handbook on Adjustable Rate Mortgages (C.H.A.R.M.): A disclosure required by the federal
  government to be given to any borrower applying for an adjustable rate mortgage (ARM).
• Conventional Loan: A mortgage loan that is not insured, guaranteed, or funded by the Veterans
  Administration (VA), the Federal Housing Administration (FHA), or Rural Economic Community Development
  (RECD) (formerly Farmers Home Administration).
• Convertible Mortgage: An adjustable rate mortgage (ARM) that allows a borrower to switch to a
  fixed-rate mortgage at a specified point in the loan term.
• Co-signer: One who is obligated to repay a mortgage loan should the borrower default but who does
  not share ownership in the property. See also: co-mortgagor.
• Covenants: Rules and restrictions governing the use of property.
• CRV (see Certificate of Reasonable Value):
• Curtailments: The borrower’s privilege to make payments on a loan’s principal before they are due.
  Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage’s prepayment
  clause.

D

• Debt: Money owed to repay someone.
• Debt-to-Income Ratio: The ratio between a borrower’s monthly payment obligations divided by his or
  her net effective income (gross income minus federal income tax).
• Deed of Trust: A legal document used in place of a mortgage in some states. The property is
  transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed
  upon payment in full.
• Department of Housing and Urban Development (HUD): A federal agency that oversees the Federal
  Housing Administration (FHA) and regulates RESPA. It also administers programs to improve housing and
  neighborhood conditions, regulate quality, and offer rent subsidies.
• Discount Points: Prepaid interest assessed at closing by the lender. Each point is equal to one
  percent of the loan amount. Discount points are a one-time charge assessed to lower the interest rate on
  the mortgage loan.
• Down Payment: The difference between the sales price and the mortgage amount paid in cash at
  closing. The larger the down payment, the smaller the mortgage.
• Due-on-sale: A clause in a mortgage contract requiring the borrower to pay the entire loan balance
  in full upon sale or transfer of the property.

E

• Earnest Money: A deposit made by the potential homebuyer to show that they are serious about buying
  the property.
• Easement: The right to use someone else’s land for a specific purpose. Easements are classified as
  either appurtenant (the right to use adjacent property) or gross (the right to use another’s property).
• Equal Credit Opportunity Act: A federal law requiring lenders and other creditors to make credit
  available without discrimination based on race, color, religion, national origin, age, sex, marital
  status, or receipt of income from public assistance programs.
• Equity: The owner’s financial interest in a property, calculated by subtracting the amount still
  owed on the mortgage loan(s) from the fair market value of the property.
• Escape Clause: A clause in a purchase contract allowing either party to cancel part or all of the
  contract if specific conditions are not met.
• Escrow: A special account set up by the lender to hold money from a borrower to pay for property
  taxes and insurance. The borrower pays a set amount monthly to cover taxes, mortgage insurance, and
  hazard insurance. The lender disburses payments from the escrow account.

F

• Fair Market Value: The price a willing buyer will pay a willing seller in a free market.
• Fannie Mae: Federal National Mortgage Association (FNMA), a private corporation authorized by
  Congress to purchase residential mortgages and convert them into securities to be sold to investors. The
  company provides funds for one in seven mortgages.
• Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac): A federally-chartered corporation
  that purchases residential mortgages, securitizes them, and sells them to investors. By doing this,
  Freddie Mac replenishes the supply of money available for mortgages.
• Federal Housing Administration (FHA): A division of the Department of Housing and Urban Development
  (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders.
• Federal National Mortgage Association (FNMA or Fannie Mae): A federally-chartered corporation that
  purchases residential mortgages, securitizes them, and sells them to investors. This gives lenders the
  ability to lend more money at lower rates, while replenishing the supply of money available for
  mortgages.
• Fee Simple: The highest form of ownership of real estate recognized by the law. The owner has the
  right to use, sell, or otherwise dispose of the property at any time.
• Fifteen-year Mortgage: A mortgage requiring monthly payments to retire the debt in 15 years. Because
  of the shorter time to repay the loan, monthly payments will be higher.
• Fixed-rate Mortgage: A mortgage in which the interest rate does not change during the entire term of
  the loan. This allows borrowers to accurately predict future payments.
• Flood Insurance: Insurance that compensates for physical property damage resulting from flooding. It
  is required for properties located in federally designated flood areas.
• FNMA (see Federal National Mortgage Association):
• Freddie Mac: Federal Home Loan Mortgage Corporation (FHLMC), a federally-chartered corporation that
  purchases residential mortgages, securitizes them, and sells them to investors. This provides lenders
  with the ability to lend more money at lower rates, while replenishing the supply of money available for
  mortgages.

G

• Gift: Money or property given by one person to another without a return expectation. Some gifts
  require payment of gift tax.
• Ginnie Mae: Government National Mortgage Association (GNMA), a government-owned corporation that
  performs the same role as Freddie Mac and Fannie Mae but only with government-insured loans. It provides
  funds for FHA and VA loans by buying mortgages and pooling them into mortgage-backed securities.
• Good Faith Estimate: An estimate of all settlement charges provided by a mortgage lender to the
  borrower within three days of receiving a loan application under the Real Estate Settlement Procedures
  Act (RESPA).
• Government National Mortgage Association (GNMA or Ginnie Mae): A government-owned corporation that
  performs the same role as Freddie Mac and Fannie Mae but only with government-insured loans. It provides
  funds for FHA and VA loans by buying mortgages and pooling them into mortgage-backed securities.
• Graduated Payment Mortgage (GPM): A type of mortgage where the payments increase over a few years
  and then level off. The interest rate for this type of mortgage is lower than the rate for a traditional
  fixed-rate mortgage.

H

• Hazard Insurance: Insurance coverage protecting against loss from a property damage caused by fire,
  wind, storms, or other natural disasters.
• Home Equity Loan: A mortgage loan where the borrower uses the equity of their home as collateral.
  The loan amount is determined by the value of the property and the amount of equity the borrower has.
• Home Inspection: A thorough inspection of a property, conducted by a professional home inspector, to
  evaluate the condition of the property’s structure, systems, and components.
• Homeowners Insurance: Insurance coverage that combines personal liability insurance and hazard
  insurance coverage for a dwelling and its contents. It typically includes coverage for damage to the
  property and liability for injuries and damage caused by the homeowner or members of the household.
• Housing and Urban Development (HUD): A federal agency that oversees the Federal Housing
  Administration (FHA) and regulates RESPA. It also administers programs to improve housing and
  neighborhood conditions, regulate quality, and offer rent subsidies.
• Housing Affordability Index: A measure of the percentage of a median family’s income required to
  purchase a median-priced home.
• Housing Expenses-to-Income Ratio: A ratio used to determine how much of a borrower’s income is
  needed to cover housing expenses.

I

• Income Approach to Value: An appraisal method that estimates the value of a property by evaluating
  its income-producing potential.
• Income-to-Debt Ratio: The ratio between a borrower’s monthly payment obligations divided by his or
  her net effective income (gross income minus federal income tax).
• Index: A financial indicator that is used to measure changes in the economy, such as inflation rates
  or interest rates.
• Insurance: A contract in which an individual or entity receives financial protection or
  reimbursement against losses from an insurance company.
• Interest: The amount paid for the use of borrowed money. Interest is usually expressed as a
  percentage of the principal balance of the loan.
• Interest Cap: A limit on the amount the interest rate can increase or decrease over the life of an
  adjustable-rate mortgage.
• Interest Rate: The amount charged, expressed as a percentage of the principal, by a lender to a
  borrower for the use of money.
• Interest Rate Cap: A limit on the amount the interest rate can increase or decrease over the life of
  an adjustable-rate mortgage.
• Investment Property: Real estate property purchased with the intention of earning a return on the
  investment, either through rental income, the future resale of the property, or both.

J

• Joint Tenancy: A form of co-ownership in which two or more parties hold equal shares of a property
  with the right of survivorship. If one owner dies, the surviving owner(s) automatically inherits the
  deceased owner’s share of the property.

K

• Key Rate: The rate set by the Federal Reserve that affects other interest rates in the economy.

L

• Land Contract: A contract for the sale of real property where the seller retains title to the
  property until the buyer has made payments according to the contract terms.
• Late Charge: A penalty fee charged by the lender when the borrower does not make a loan payment on
  time.
• Lease Option: A contract where a buyer leases a property with an option to purchase it at a
  predetermined price within a specified period.
• Lease Purchase: A lease with a contract to purchase at a future date.
• Leasehold Estate: The right to use and occupy real estate for a specified period of time, as
  outlined in a lease agreement between the owner of the property (lessor) and the tenant (lessee).
• Legal Description: A precise description of a property’s location that is recognized by law and used
  in legal documents such as deeds and mortgages.
• Lender: A financial institution or individual that provides funds to borrowers in exchange for
  repayment with interest.
• Leverage: The use of borrowed capital to increase the potential return on an investment.
• Liabilities: Financial obligations or debts owed by an individual or entity.
• Liability Insurance: Insurance coverage that provides protection against claims resulting from
  injuries and damage to people or property caused by the insured.
• Lien: A legal claim against a property that must be satisfied when the property is sold. Liens can
  be created voluntarily, such as through a mortgage, or involuntarily, such as through a judgment or tax
  lien.
• Life-of-Loan Cap: A limit on the amount the interest rate can increase over the life of an
  adjustable-rate mortgage.
• Loan-to-Value Ratio (LTV): The ratio between the loan amount and the value of the property being
  purchased or refinanced, expressed as a percentage.
• Lock-in: An agreement between the borrower and the lender that allows the borrower to lock in an
  interest rate for a specified period of time, usually until the loan closes.
• Loss Ratio: The ratio of incurred losses and loss adjustment expenses to earned premiums, used to
  measure the profitability of an insurance company’s underwriting operations.
• LTV (see Loan-to-Value Ratio):

M

• Margin: The amount added to the index in an adjustable-rate mortgage to determine the interest rate.
• Maturity Date: The date on which the principal balance of a loan, bond, or other financial
  instrument becomes due and payable.
• MIP (see Mortgage Insurance Premium):
• Modification: A change in the terms of a mortgage loan, typically to make it more affordable for the
  borrower.
• Monthly Housing Expenses-to-Income Ratio: A ratio used to determine how much of a borrower’s income
  is needed to cover monthly housing expenses.
• Mortgage: A legal document that pledges a property to the lender as security for the repayment of a
  loan.
• Mortgage Banker: A financial institution that originates, services, and sells mortgage loans
  directly to investors without using intermediaries such as brokers.
• Mortgage Broker: A licensed professional who arranges mortgage loans between borrowers and lenders
  for a fee.
• Mortgage Insurance (MI): Insurance coverage that protects the lender in case the borrower defaults
  on the loan. Mortgage insurance is usually required for loans with a loan-to-value ratio above 80%.
• Mortgage Insurance Premium (MIP): Insurance coverage that protects the lender in case the borrower
  defaults on the loan. Mortgage insurance is usually required for loans with a loan-to-value ratio above
  80%.
• Mortgagee: The lender in a mortgage loan transaction.
• Mortgagor: The borrower in a mortgage loan transaction.
• Multiple Listing Service (MLS): A database of real estate listings created and maintained by real
  estate professionals.

N

• Negative Amortization: A situation in which the principal balance of a loan increases because the
  monthly payments are not large enough to cover the interest due.
• Net Effective Income: Gross income minus federal income tax.
• Non-assumption Clause: A clause in a mortgage contract prohibiting the assumption of the mortgage by
  another borrower without the lender’s approval.
• Non-conforming Loan: A loan that does not meet Federal National Mortgage Association (FNMA) or
  Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: conforming loan.
• Note: A written promise to repay a loan. The note contains the terms of the loan, including the
  interest rate, repayment schedule, and any other provisions.
• Note Rate: The interest rate specified in a promissory note.

O

• Open-end Mortgage: A mortgage where the principal balance can be increased by the borrower, usually
  up to a pre-set maximum amount. See also: closed-end mortgage.
• Option to Purchase: A clause in a lease agreement giving the tenant the right to purchase the
  property at a predetermined price within a specified period.
• Origination Fee: A fee charged by the lender for processing a loan application.
• Owner Financing: A financing arrangement in which the seller of a property provides financing to the
  buyer, usually in the form of a mortgage.

P

• Payment Cap: A limit on the amount the monthly payment can increase on an adjustable-rate mortgage.
• Payment-to-Income Ratio: A ratio used to determine how much of a borrower’s income is needed to
  cover monthly mortgage payments.
• Piggyback Mortgage: A second mortgage taken out at the same time as the first mortgage to avoid
  paying private mortgage insurance (PMI).
• PITI: Acronym for principal, interest, taxes, and insurance, which are the four components of a
  monthly mortgage payment.
• PMI (see Private Mortgage Insurance):
• Point: A fee charged by the lender equal to one percent of the loan amount. Points are paid upfront
  at closing and are used to reduce the interest rate on the mortgage.
• Pre-approval: A lender’s written commitment to grant a borrower a loan up to a specified amount
  based on the borrower’s credit, income, and other financial information.
• Prepayment Penalty: A fee charged by the lender for paying off a mortgage loan before its maturity
  date.
• Principal: The original amount of money borrowed in a loan. It is the amount upon which interest is
  calculated.
• Private Mortgage Insurance (PMI): Insurance coverage that protects the lender in case the borrower
  defaults on the loan. PMI is usually required for loans with a loan-to-value ratio above 80%.
• Promissory Note: A written promise to repay a loan. The promissory note contains the terms of the
  loan, including the interest rate, repayment schedule, and any other provisions.
• Property Taxes: Taxes assessed on real estate by local government authorities and used to fund
  public services such as schools, roads, and law enforcement.

Q

• Qualification: The process of determining whether a borrower meets the lender’s guidelines for a
  loan.
• Qualifying Ratios: Ratios used by lenders to determine how much of a borrower’s income can be used
  to pay housing expenses and other debt obligations.

R

• Real Estate Settlement Procedures Act (RESPA): A federal law that requires lenders to provide
  borrowers with certain disclosures about the terms and costs of a mortgage loan and prohibits certain
  practices, such as kickbacks and referral fees.
• Real Property: Land and everything permanently attached to it, including buildings, trees, minerals,
  and rights to use the land.
• Recording: The process of entering a document into the public record. Recording provides
  constructive notice of the document to the public.
• Refinance: The process of paying off an existing loan with the proceeds from a new loan, usually to
  obtain a lower interest rate or to access equity in the property.
• Rehabilitation Mortgage: A mortgage that includes funds for the rehabilitation or renovation of a
  property.
• Remaining Term: The length of time remaining on a mortgage loan.
• Rent: Payment made by a tenant to a landlord in exchange for the right to use and occupy a property.
• Rescission: The cancellation or annulment of a contract or agreement.
• RESPA (see Real Estate Settlement Procedures Act):
• Reverse Mortgage: A loan that allows homeowners aged 62 or older to convert part of the equity in
  their homes into cash. The loan does not have to be repaid until the last surviving borrower dies, sells
  the home, or no longer lives in the home as a principal residence.
• Risk-Based Pricing: The practice of setting loan terms and interest rates based on the borrower’s
  creditworthiness.
• ROE (see Return on Equity):

S

• Second Mortgage: A mortgage that is subordinate to a first mortgage and is secured by the same
  property.
• Secondary Market: The market where mortgage loans are bought and sold by investors.
• Secured Loan: A loan that is backed by collateral, such as real estate or personal property.
• Security Instrument: A legal document, such as a mortgage or deed of trust, that pledges a property
  to the lender as security for the repayment of a loan.
• Seller Financing: A financing arrangement in which the seller of a property provides financing to
  the buyer, usually in the form of a mortgage.
• Servicer: The entity responsible for servicing a mortgage loan, including collecting payments,
  managing escrow accounts, and handling delinquencies.
• Settlement Statement: A document provided to the borrower at closing that itemizes all the costs
  associated with the mortgage loan, including closing costs, prepaid items, and escrow account balances.
• Simple Interest: Interest calculated only on the principal balance of a loan.
• Soft Market: A real estate market characterized by a surplus of properties for sale and low demand
  from buyers, leading to falling prices and longer times on the market.
• Special Assessment: A fee imposed by a local government to cover the cost of public improvements,
  such as road repairs or sewer upgrades, that benefit a specific area.
• Stated Income Loan: A loan that does not require the borrower to document their income through pay
  stubs, W-2 forms, or tax returns.
• Survey: A drawing or map showing the boundaries and dimensions of a property, as well as any
  improvements or encroachments.
• Sweat Equity: The increase in value of a property resulting from the owner’s labor or improvement
  efforts.

T

• Tax Lien: A legal claim against a property for unpaid property taxes.
• Tax Sale: A public sale of a property by a governmental authority to recover delinquent property
  taxes.
• Tenancy by the Entirety: A form of co-ownership in which spouses jointly own property with the right
  of survivorship. If one spouse dies, the surviving spouse automatically inherits the deceased spouse’s
  share of the property.
• Tenancy in Common: A form of co-ownership in which two or more parties hold undivided interests in a
  property. Each owner has the right to sell, mortgage, or transfer their interest without the consent of
  the other owners.
• Title: The legal right to ownership of a property.
• Title Insurance: Insurance coverage that protects against losses from defects in the title of a
  property.
• Title Search: An examination of public records to determine the chain of ownership of a property and
  to identify any liens or other encumbrances on the property’s title.
• Truth-in-Lending Act (TILA): A federal law that requires lenders to disclose the terms and costs of
  a loan to borrowers.

U

• Underwriting: The process of evaluating a borrower’s creditworthiness and ability to repay a loan.
• Up-front Mortgage Insurance Premium (UFMIP): Insurance coverage that protects the lender in case the
  borrower defaults on the loan. UFMIP is usually required for loans insured by the Federal Housing
  Administration (FHA) and is paid upfront at closing.

V

• VA Loan: A mortgage loan guaranteed by the Department of Veterans Affairs (VA) that is available to
  eligible veterans, active-duty service members, and certain members of the National Guard and Reserves.
  VA loans offer flexible terms and require no down payment or private mortgage insurance (PMI).
• Variable Rate Mortgage: See Adjustable Rate Mortgage (ARM).
• Veterans Administration (VA): A federal agency that provides benefits and services to eligible
  veterans, active-duty service members, and certain members of the National Guard and Reserves, including
  mortgage loan guarantees.
• Verification of Deposit (VOD): A document provided by a borrower’s bank or financial institution
  verifying the amount of money in the borrower’s accounts.

W

• Warranty Deed: A deed that guarantees the title of a property and protects the buyer against any
  defects in the title.
• Withholding Tax: Income tax withheld from an employee’s wages and paid directly to the government by
  the employer.
• Wraparound Mortgage: A mortgage that combines an existing mortgage with a new mortgage, creating a
  single loan with a single monthly payment. The new mortgage “wraps around” the existing mortgage and
  pays it off over time.

X

• Xeriscaping: Landscaping and gardening that reduces or eliminates the need for supplemental water
  from irrigation.

Y

• Yield Spread Premium (YSP): A fee paid by the lender to the mortgage broker for originating a loan
  with an interest rate higher than the market rate. YSP is often used to compensate the broker for
  providing the borrower with a loan with a higher interest rate than necessary.

Z

• Zero Down Payment Mortgage: A mortgage that does not require the borrower to make
  a down payment at closing. These types of mortgages are typically offered to borrowers with good credit and
  stable income.