Glossary

An initial statement of personal and financial information required to apply for a loan.

A common provision of a mortgage or note providing the holder with the right to demand that the entire outstanding balance is immediately due and usually payable in the event of default.

Interest earned but not yet paid.

Loans with interest rates that are adjusted periodically based on changes in a pre-selected index. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. These mortgage loans must specify how their interest rate changes, usually in terms of a relation to a national index such as (but not always) Treasury bill rates. If interest rates rise, your monthly payments will rise. An interest rate cap limits the amount by which the interest rate can change; look for this feature when you consider an ARM loan.

On an ARM loan, the time between changes in the interest rate or monthly payment.

Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application.

Repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.

The cost of credit expressed as a yearly rate. The annual percentage rate is often not the same as the interest rate. It is a percentage that results from an equation considering the amount financed, the finance charges, and the term of the loan.

Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges.

A written estimate of a property’s current market value completed by an impartial party with knowledge of real estate markets.

A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.

See Annual Percentage Rate.

See Adjustable Rate Mortgage Loans.

The transfer of ownership, rights, or interests in property by one person, the assignor, to another, the assignee.

A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.

Balloon mortgage loans are short-term fixed-rate loans with fixed monthly payments for a set number of years followed by one large final balloon payment (“the balloon”) for all of the remainder of the principal. Typically, the balloon payment may be due at the end of 5, 7, or 10 years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.

A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts.

The legal owner of a piece of property.

A gift of personal property by will.

A mortgage that covers more than one parcel of real estate.

In good faith.

In individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.

An individual who brings buyers and sellers together and assists in negotiating contracts for a client.

A mortgage loan with a below-market rate for a period of time.

Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.

A provision of a note which allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised due to breach of the terms of the loan or at the discretion of the lender.

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, these consumer safeguards may cause negative amortization.

Any cash received when you get a new loan that is larger than the remaining balance of your current mortgage, based upon the equity you have already built up in the house.The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. For example, if your existing loan is $100,000, you might refinance it with a loan of $120,000. After you pay off your current loan ($100,000) and any loan-origination costs for the new loan (for example $2,000 in points), you would be left with $18,000 cash out. Cash-out loans may not be available for all types of property.

A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank’s account instead of the customer’s.

The maximum allowable interest rate of an adjustable rate mortgage.

Document issued by the Veterans Administration to qualified veterans which verifies a veteran’s eligibility for a VA guaranteed loan. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).

Written opinion of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.

FHA form filled out by the VA to establish a borrower’s eligibility for an FHA Vet loan. Obtainable through local VA office by submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of veteran status).

The chronological order of conveyance of a property from the original owner to the present owner.

The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

Costs for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney’s fees, and surveying fees.

See Cost of Funds Index.

Assets (such as your home) pledged as security for a debt.

Money paid to a real estate agent or broker for negotiating a real estate or loan transaction.

A promise to lend and a statement by the lender of the terms and conditions under which a loan is made.

A form of property ownership in which the homeowner holds title to an individual dwelling unit and a proportionate interest in common areas and facilities of a multi-unit project.

A mortgage loan which meets all requirements to be eligible for purchase by federal agencies such as FNMA and FHLMC. The maximum conforming loan amount is $240,000 for a one-unit property.

A condition which must be satisfied before a contract is legally binding.

The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Loans that are not made under any government housing program; they are not subject to the restrictions of government housing programs, such as loan size limits.

A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.

A type of ARM loan with the option to convert to a fixed-rate loan during a given time period.

The document used to effect a transfer, such as a deed, or mortgage.

An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

A report detailing the credit history of a prospective borrower that’s used to help determine borrower creditworthiness.

Legal document by which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.

A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full.

Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Failure to make payments as agreed in the loan agreement.

Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

The amount of your home’s purchase price you need to supply up front in cash to get your loan. For conventional loans, you should strive for a down payment that’s at least 20% of your home’s value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home’s purchase price. (Note, however, that FHA and VA loans have different policies regarding insurance.)

Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.

Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.

See Equal Credit Opportunity Act.

The effective rate is a consumer-oriented rate that takes into account the projected amount of time you tell us you will actually have the loan, as well as the specific costs, fees, and potential rate changes associated with it. The fees and costs are distributed over the time you plan to be in the house, allowing you to do an apples-to-apples comparison of a variety of loan types. The effective rate is not the APR. It is similar in that it factors in interest, mortgage insurance, and other fees (including points); however, the APR assumes that you keep your loan for the entire term, while the effective rate takes into account how long you tell us you plan to be in your house.

Federal law requiring 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.

The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.

A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds.

An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account.

A person with fiduciary responsibility to the buyer and seller, or the borrower and lender, to ensure that the terms of the purchase/sale or loan are carried out.

A common nickname for the Federal National Mortgage Association.

See Federal Deposit Insurance Corporation.

Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation’s banking system.

This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.

Absolute ownership of real property.

See Federal Housing Administration.

Fixed- or adjustable-rate loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans. With FHA insurance, eligible buyers can purchase a home with a down payment as little as 3% of the appraised value or the purchase price, whichever is lower. FHA borrowers typically are required to participate in a face-to-face meeting with their lender or a government approved mortgage counselor prior to closing on a new mortgage loan. The current FHA loan limits vary depending on home type and home location. To find the most recent limits for your home, consult the FHA Maximum Mortgage Limits web page.

See Federal Home Loan Mortgage Corporation.

A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

An interest rate which is fixed for the term of the loan.

Fixed-rate loans have interest rates that do not change over the life of the loan. As a result, monthly payments for principal and interest are also fixed for the life of the loan. Fixed-rate loans typically have 15-year or 30-year terms. With a fixed-rate loan, you will have predictable monthly mortgage payments for as long as you have the loan.

Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.

See Federal National Mortgage Association.

The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.

Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default.

A common nickname for the Federal Home Loan Mortgage Corporation.

Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), the lender is required to provide this disclosure to the borrower within three days of receiving a loan application.

Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note.

Total income before taxes or expenses are deducted.

Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.

See HUD.

Housing and Urban Development. A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

A standard form which itemizes the closing costs associated with purchasing a home or refinancing a loan.

An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses impound account funds on behalf of the borrower when they become due. (Also known as Escrow Account.)

A published rate used by lenders that serves as the basis for determining interest rate changes on ARM loans.

The rate charged during the first interval of an ARM loan.

Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed.

The annual rate of interest on the loan, expressed as a percentage of 100.

Consumer safeguards which limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.

Liability shared among two or more people, each of whom is liable for the full debt.

A form of ownership of property giving each person equal interest in the property, including rights of survivorship.

A mortgage larger than the $240,000 limit set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first.

Penalty paid by a borrower when a payment is made after the due date.

The bank, mortgage company, or mortgage broker offering the loan.

The interest rate charged among banks in the foreign market for short-term loans to one another. A common index for ARM loans.

A legal claim by one person on the property of another for security for payment of a debt.

An initial statement of personal and financial information required to apply for a loan.

Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process or the fee may be in addition to these charges.

Fee charged by a lender to cover administrative costs of processing a loan.

The percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property.

A lender’s guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.

A specified percentage that is added to your chosen financial index to determine your new interest rate at the time of adjustment for ARM loans.

A legal document by which real property is pledged as security for the repayment of a loan.

An individual or company that originates and/or services mortgage loans.

An individual or company that arranges financing for borrowers.

Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home’s appraised value. (Note, however, that FHA and VA loans have different insurance guidelines.)

A loan for which real estate serves as collateral to provide for repayment in case of default.

Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.

The lender in a mortgage loan transaction.

The borrower in a mortgage loan transaction.

A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.

A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.

Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.

Written notice to a borrower that a default has occurred and that legal action may be taken.

Fee charged by a lender to cover administrative costs of processing a loan.

Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.

Interest calculated per day. (Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.)

Abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment.

Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.

Legal document authorizing one person to act on behalf of another.

The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower’s credit history. Information submitted during pre-approval is subject to verification at application.

The process of determining how much money a prospective homebuyer will be eligible to borrow prior to application for a loan. Information submitted during pre-qualification is subject to verification at application.

Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing.

Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.

Full or partial repayment of the principal before the contractual due date.

Fee charged by a lender for a loan paid off in advance of the contractual due date.

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

Insurance to protect the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home’s purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.)

Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Land and any improvements permanently affixed to it, such as buildings.

The transfer of property back to the owner when a mortgage loan is fully repaid.

The act of entering documents concerning title to a property into the public records.

Money paid to an agent for entering the sale of a property into the public records.

The process of paying off one loan with the proceeds from a new loan secured by the same property.

Real Estate Settlement Procedures Act. RESPA is a federal law that gives consumers the right to review information about loan settlement costs. The law gives you the right to review this information after you apply for a loan, and again at loan settlement. The law only obliges lenders to provide these settlement costs after application.

Under the provisions of the Truth-in-Lending Act, the borrower’s right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage.

Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

An additional mortgage placed on a property that has rights that are subordinate to the first mortgage.

The settlement or closing is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).

HUD – published booklet that provides an overview of the lending process, and that is given to consumers after completing loan application.

Also known as closing costs, these costs are for services that must be performed before your loan can be initiated. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney’s fees, taxes, and surveying fees.

A measurement of land, prepared by a licensed surveyor, showing a property’s boundaries, elevations, improvements, and relationship to surrounding tracts.

Value added to a property in the form of labor or services of the owner rather than cash.

Money paid to and held by a lender for annual tax payments.

Claim against a property for unpaid taxes.

Public sale of property by a government authority as a result of non-payment of taxes.

The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

Document which gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property.

A company that insures title to property.

Insurance which protects the lender (lender’s policy) or the buyer (owner’s policy) against loss due to disputes over ownership of a property.

Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.

Tax paid when title passes from one owner to another.

Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right to rescission period.

In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.

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

Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee, and lower closing costs than other financing options. The maximum VA loan amount is currently $203,000.

Interest rate that changes periodically in relation to an index.

See Adjustable Rate Mortgage.

Document signed by the borrower’s bank or other financial institution verifying the borrower’s account balance and history.

Document signed by the borrower’s employer verifying the borrower’s position and salary.

Voluntary relinquishment or surrender of some right or privilege.

A final inspection of a home to check for problems that may need to be corrected before closing.

Local law establishing building codes and usage regulations for properties in a specified area