Glossary of Mortgage Terms

Abstract of Title - A written history of all the transactions that bear on the title to a specific piece of land. An abstract of title covers the time from when the property was first sold to the present.   TOP

Acceleration Clause - 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 the lender.    TOP

Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate varies during the term of the mortgage. Also called a Variable Rate Mortgage.    TOP

Amortization- 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.

Amortization Schedule - A timetable for payment of a mortgage reflecting the amount of each payment applied to interest and principal and the balance remaining.   TOP

Annual Percentage Rate (APR) - The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, primary mortgage insurance, and loan origination fee/points.   TOP

Appraisal - A professional opinion or estimate of the market value of a property.    TOP

Appreciation - An increase in the value of a property due to changes in market conditions or improvements to the property.    TOP

Assumable Mortgage - A mortgage that a buyer can assume or take over from the seller of the property.    TOP

Balloon Note - A note that usually calls for a final payment greater than that of the regular periodic payments.    TOP

Binder - A preliminary agreement secured by the payment of earnest money under which a buyer offers to purchase real estate.    TOP

Biweekly Mortgage - A mortgage which requires 1/2 the normal monthly payment every two weeks. Over the course of the year, 26 half payments are made which is equivalent to 13 full mortgage payments. As a result of this extra payment, the loan amortizes much faster than a loan with normal monthly payments.   TOP

Blanket Mortgage - A mortgage encumbering more than one piece of property.    TOP

Bridge Loan - A short-term loan in effect from the end of one loan to the beginning of another loan, or prior to permanent financing.    TOP

Broker Premium - Premium paid to mortgage broker as the "middleman" in the mortgage process between the lender and the borrower. Lenders offer brokers wholesale rates; brokers add a surcharge to cover the cost of underwriting to arrive at the rates charged to borrowers.    TOP

Buy Down - Obtaining a lower interest rate by paying additional points to the lender.    TOP

Cap - A provision of an Adjustable Rate Mortgage limiting how much the interest rate or mortgage payments may increase or decrease.    TOP

Certificate of Occupancy - Document issued by a local governmental agency that states a property conforms to local building standards for occupancy and is in compliance with public health and building codes.   TOP

Certificate of Title - A statement provided by a title company or attorney stating that the title to the real estate is legally held by the current owner.    TOP

Clear Title - A title that is free of liens or legal questions as to ownership of a piece of property.    TOP

Closing - Time when new mortgage and note are signed by parties in title or parties taking title to real property.    TOP

Closing Costs - Costs associated with securing a mortgage loan. On a purchase loan, funds are usually brought to closing whereas, in a refinance or 2nd mortgage, the costs are usually borne from the loan proceeds.   TOP

Commission - Fee paid to a mortgage broker for assisting in a mortgage transaction. Real estate brokers receive a commission based on the sales price of a property.   TOP

Commitment - see Mortgage Commitment    TOP

Comparables or "comps" - Refers to "comparable properties," which are used for comparative purposes in the appraisal process. Comps are recently sold properties that are similar in size, location and amenities to the home for sale. Comps help an appraiser determine the fair market value of a property.    TOP

Conforming Loan - Amount A Fannie Mae (FNMA) established maximum loan amount based on the property's legal number of units(1 family, 2 family, etc.) Loan amounts up to this maximum dollar amount are considered "conforming loans."   TOP

Contract of Sale - Written contract signed by both parties in which the seller agrees to sell and the buyer agrees to buy under certain specific terms and conditions.   TOP

Conventional Mortgage - A mortgage made by a bank or other private institution and not insured by a governmental agency.    TOP

Covenant - A written restriction on the use of land, most commonly in use today in homeowners associations.    TOP

Credit Report - A report detailing a consumers credit history including payment history on revolving and installment accounts. A credit report may also include information found from public records such as judgments, tax liens, and bankruptcies.   TOP

Debt-to-Income Ratio - The percentage of a person's monthly earnings used to pay all debt obligations. Lenders consider two ratios, constructed in slightly different ways. The first, called the front-end-ratio, the ratio of the monthly housing expenses including principal, interest property taxes and insurance (PITI) is compared to the borrower's gross, pretax monthly income. In the back-end-ratio, a borrower's other debts such as auto loans and credit cards, are also figured in. Lenders usually take both into account and set an acceptable ratio. Some lenders take only the back-end-ratio into account.    TOP

Deed - An instrument in writing duly executed and delivered that conveys title to real property.    TOP

Depreciation - A decline in the value of property: the opposite of appreciation.    TOP

Discount Points - A charge made by the lending institution to the borrower that is based on the mortgage amount. A point is one percent of the principal mortgage amount.   TOP

Down Payment - The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs.    TOP

Easement - The right to enter or use a portion of the land of another for a specific purpose.    TOP

Encroachment - Construction, such as a wall, fence, building, etc., on the property of another.    TOP

Encumbrance - A lien, charge or liability against a property.    TOP

Equal Credit Opportunity Act - 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.    TOP

Equity - The interest or value which the owner has in real estate over and above the liens against it.    TOP

Escrow - A written agreement between two or more parties providing that certain instruments or property be placed with a third party to be delivered to a designated person upon the fulfillment or performance of some act or condition.   TOP

Fair Credit Reporting Act - A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and establishes procedures for correcting mistakes on a person's credit record.   TOP

Fair Market Value - A fair price for a home based on recent sales of properties of similar size and quality in the neighborhood.    TOP

Federal Housing Administration (FHA) Mortgage - A mortgage loan made by a lender and insured by the Federal Housing Administration.    TOP

FHLMC (Freddie Mac) Federal Home Loan Mortgage Corporation - A federal agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve system and the Federal Loan Bank System.   TOP

First Mortgage - The primary mortgage on a property. If a foreclosure occurs, the first mortgage is repaid before any "junior" mortgages.    TOP

Fixed Rate Mortgage - A mortgage in which the monthly payments remain the same for the term of the loan. This loan is self-liquidating.    TOP

FNMA (Fannie Mae) - A quasi-government agency, now publicly owned, which purchases mortgages from the original mortgage lenders.    TOP

Foreclosure - A procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payment or terms.    TOP

Free and Clear - A property that has no liens.    TOP

GNMA (Ginnie Mae) - Nickname for the Government National Mortgage Association. A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress in 1968,GNMA offers a special assistance loan program.    TOP

Good Faith Estimate (GFE) - A written estimate of closing costs that a lender must provide a prospective home buyer within three days of submitting a mortgage loan application.   TOP

Hard Money Loans - Mortgage loans that are made to borrowers who have significantly adverse credit. These loans are usually made by private investors or funding companies.   TOP

Home Equity Line Of Credit (HELOC) - 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 amount.    TOP

Home Equity Loan - A home equity loan is a second mortgage or lien on your home. Home equity loans can be a very powerful tax-deductible financial tool. Since home equity credit is a type of mortgage, it shares lower interest rates and the tax advantages of mortgages. You can borrow up to $100,000 of your available home equity for virtually any purpose, and, in most cases, 100% of the interest paid each year is tax deductible (ask your tax advisor).    TOP

Homeowner's Insurance - An insurance policy that combines personal liability insurance and hazard insurance coverage for a residence and its contents.    TOP

Housing Ratio - The ratio of the monthly housing payment (PITI) to total gross monthly income, Also called Payment-to-Income Ratio or Front-End-Ratio.    TOP

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

In Rem - A proceeding against the realty directly; as distinguished from a proceeding against a person. (Used in taking land from nonpayment of taxes, etc.)    TOP

Index - A published interest rate not controlled by the lender to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked to it may increase or decrease.    TOP

Interest - The amount of money earned by the principal during a specified period of time.    TOP

Interest Rate - A percentage that when multiplied by the principal determines the amount of money that the principal earns over a period of time, usually one year.   TOP

Joint-Tenancy - A form of ownership where two parties own a property equally.    TOP

Judgment - The decision of a court of law stating that one individual is indebted to another and fixing the amount of indebtedness. Judgments when recorded, become a lien on real property owned by the defendant.   TOP

Jumbo Loan - Loan size that is larger than the limit established by Fannie Mae or Freddie Mac.    TOP

Junior Mortgage - A mortgage of lesser rank than the first mortgage. A mortgage second in lien to a previous mortgage. Also see first mortgage.   TOP

Lease-Purchase Mortgage - A financing option that allows a potential home buyer to lease a property with the option to buy. Often constructed so the monthly rent payment covers the owner's first mortgage payment, plus an additional amount as a savings deposit to accumulate cash for a downpayment. A seller may agree to a lease-purchase option if the housing market is saturated and the seller is having difficulty selling the property.    TOP

Lessee - A person to whom property is rented under a lease ("tenant").    TOP

Lessor - A person who rents property to another under a lease ("landlord").    TOP

Lien - A legal right or claim upon a specific property which attaches to the property until a debt is satisfied.    TOP

Life Estate - An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party.    TOP

Lis Pendens - A legal document filed in the office of the county clerk giving notice that an action or proceeding is pending in the courts affecting the title to the property.    TOP

Loan Application - A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.    TOP

Loan Origination Fee or Points - Charge by a lender or broker connected with originating a loan. This is different than discount points which are used to buy down the rate of interest.    TOP

Loan to Value (LTV) - The percentage of loan available toward the value of the property.    TOP

Lock-in - A written agreement guaranteeing the home buyer/owner a specified interest rate provided the loan is closed within a set period of time. There is sometimes a point that is paid in advance to lock-in at a specific rate/time.    TOP

Margin - The number of percentage points added to the index on a one year adjustable rate mortgage (ARM). For example, if the index rate is 9 percent and the margin is 3 percent, than the fully indexed rate is 12 percent.   TOP

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

Mortgage - A legal document that establishes real estate as the security for the loan which finances that real estate. Colloquially, the term "mortgage" is sometimes used to refer to the loan itself.   TOP

Mortgage Banker - The lender that originates the mortgage loan; the one making the loan directly and closing the loan.    TOP

Mortgage Broker - An individual or company that brings borrowers and lenders together for the purpose of loan origination. Unlike a mortgage banker, brokers do not fund the loan but work on behalf of several lenders. Brokers typically require a fee or a commission for their services.    TOP

Mortgage Commitment - A written offer of a mortgage loan by a lending institution . Often in the form of a letter, the commitment specifies the terms and conditions of the mortgage loan being offered to the prospective borrower.   TOP

Mortgage Note - A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it should be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.    TOP

Mortgagee - The institution or person who is the lender or creditor on a mortgage loan.    TOP

Mortgagor - The institution or person who is the borrower or debtor on a mortgage loan.    TOP

Negative Amortization - An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.   TOP

No Income Check Loan - This program is designed for the entrepreneur or self-employed that choose not to have their income revealed or just have difficulty proving their income. The rate tends to be higher on a No Income Check Loan.    TOP

No-Documentation Loans or NO-DOC - NO-DOC means No verification of income or even job. Rates will vary depending on LTV and credit scores.    TOP

Note - A written instrument that acknowledges a debt and promise to pay.    TOP

Origination Fee - A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. It is usually a percentage of the loan amount.    TOP

Owner Financing or Seller-take-back - A property purchase transaction in which the seller of the property provides all or part of the financing.    TOP

Owner of Record - The individual named on a deed that has been recorded at the county recorders office.    TOP

Piggy Back Loan - A second loan on a home, usually up to 15%-20% of the property's purchase price. If you make a 10% downpayment on a home, one way to avoid paying for private mortgage insurance (PMI) is to get two loans. Here's how it works: you get a loan for 80% of a property's purchase price at a standard interest rate and then get a second, "piggy back" loan at 10% of the purchase price, though at a higher rate. This type of financing is commonly called 80-10-10. If the first loan is less than $227,150, you can opt for a 75-15-10 arrangement, which will give you a lower interest rate on the first loan. To figure out if getting a second makes sense for you, compare your monthly costs with a piggy back loan versus PMI.    TOP

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

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.   TOP

Points - Charges levied by the broker or lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.    TOP

Power of Attorney - A written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney.    TOP

Pre-approval - The process goes a step further than prequalification. It means the broker or lender has verified the borrower's earnings(unless stated), assets, etc. The borrower receives a letter stating the lender is willing to grant a mortgage for a specified amount, within a period of time.   TOP

Pre-qualification - An early evaluation by a lender of a potential home buyer's credit report plus earnings, savings, and debt information. The home buyer gets a nonbinding estimate of the mortgage amount the borrower would qualify for, or how much house the borrower can afford. Buyers who pre-qualify can go a step further and seek pre-approval.   TOP

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.    TOP

Prepayment Penalty - A charge imposed by a mortgage lender on a borrower who pays off the mortgage loan early in its term. The prepayment penalty is specified in the note.    TOP

Prime Rate - The lowest commercial interest rate charge by a bank on short term loans to their most credit worthy Customers.    TOP

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%.    TOP

Processor - An employee at a mortgage company responsible for collecting documentation from borrowers and banks. Their duties include the gathering of income information, mortgage verifications/payoffs, homeowners insurance, ordering appraisal and title or any other conditions that a lender requests to facilitate the closing of a mortgage loan.   TOP

Purchase Money Mortgage - A mortgage given by a guarantee in part payment of the purchase price of real estate.    TOP

Quit Claim Deed - A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed, the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.    TOP

Rate Lock - A commitment issued by a lender to a homebuyer/homeowner guaranteeing a specific interest rate for a specified amount of time.    TOP

Real Estate Agent - A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.    TOP

Real Estate Settlement Procedures Act (RESPA) - A consumer protection law that requires lenders to give home buyers advance notice of closing costs, which are payable at closing or settlement meeting.   TOP

Real Property - Land and generally whatever is erected upon or affixed thereto.    TOP

Realtor - A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.   TOP

Recision - The cancellation of a contract. When refinancing a mortgage on a principal residence, the law gives the homeowner three days (recision period) to cancel the contract.    TOP

Recording - The act of writing or entering in a book of public record instruments affecting the title to real property.    TOP

Refinance - A mortgage which replaces an existing mortgage.    TOP

Reverse Mortgage - A mortgage used by the elderly that provides income as long as they live in exchange. Payments made cause the loan principal to increase.   TOP

Sales Agreement - A written contract signed by the buyer and the seller of a house stating the terms and conditions under which the property will be sold.

Second Mortgage - A subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages generally carry a higher rate than a first since they represent a higher risk for an investor.    TOP

Secondary Mortgage Market - The buying and selling of existing mortgages.    TOP

Servicer - An organization that collects monthly mortgage principal and interest payments from homeowners and manages escrow accounts for paying taxes and homeowner's insurance premiums. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.    TOP

Settlement - See closing    TOP

Stated Loan - A mortgage product available to borrowers who do not wish to prove their income. It is usually designed for self-employed borrowers or borrowers that would rather state their income rather than submit proof of income.    TOP

Sub-Prime - A sub-prime loan is any loan in which the borrower has challenges in obtaining mortgage financing because of poor credit, hard to document income or assets, or any unique situation that would prevent them from obtaining funding through "conforming" lenders.    TOP

Subordination Clause - A clause which permits the placing of a mortgage at a later date which takes priority over an existing mortgage.    TOP

Survey - Map made by a licensed surveyor who measures land and charts its boundaries, improvements and relationship to the property surrounding it.    TOP

Tax Lien - Lien for nonpayment of taxes.    TOP

Tax Sale - Public sale of property at an auction by a government authority as a result of nonpayment of taxes.    TOP

Teaser Rate - A low initial rate on a mortgage. This is often used to induce people into the loan since the start rate is low.    TOP

Tenants-by-Entirety - A form of ownership in which husband and wife are co-owners with rights of survivorship.    TOP

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.   TOP

Title - Evidence that an owner of land is in lawful possession thereto; evidence of ownership.    TOP

Title Insurance - A policy of insurance which indemnifies the holder for any loss sustained by reason of defects in the title.    TOP

Title Search - An examination of the public records to determine the ownership and encumbrances affecting real property.    TOP

Transfer Tax - Tax paid to the city, county, state or other government entity upon sale of a property.    TOP

Truth-in-Lending Act or Regulation Z - 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.   TOP

Underwriting - The decision whether to make a loan to a buyer/homeowner based on credit, income, employment history, assets, etc.    TOP

Unencumbered - Free of liens and other encumbrances. Free and clear.    TOP

Unmarketable Title - Not saleable. A title which has serious defects.    TOP

Unrecorded Deed - A document that transfers title from the grantor to the grantee without recording( e.g. providing public notice).    TOP

Vendor - The person who transfers property by sale. Another word for "seller". Commonly used in land contract sales.    TOP

Verification of Deposit (VOD) - A document signed by the borrower's bank or other financial institution verifying the account balance and history.    TOP

Verification of Employment (VOE) - A document signed by the borrower's employer verifying his/her employment. Some investor's will accept a VOE verbally from an employer.    TOP

Verification of Mortgage (VOM) or Mortgage Verification - A form sent to a potential investor or lender that provides a loan summary which includes payments made and detailed loan statistics and information.    TOP

Veterans Administration (VA) - A government agency guaranteeing mortgage loans with no downpayment to qualified veterans.    TOP

Waive - To knowingly abandon, relinquish, or surrender a right, benefit, or claim.    TOP

Wraparound Mortgage - A new mortgage that includes the remaining balance on an old mortgage, plus a new amount.    TOP

Yield - Ratio of income from an investment to the total cost of the investment over a given period of time.    TOP

Zoning Ordinances - The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.  TOP