A Mortgage loan = combining a promissory note
and mortgage in tandem
Adjustable-rate mortgage (ARM) – A Promissory note with an
adjustable rate rider (this in whole is generally incorrectly
referred to as the Mortgage) that changes interest rate periodically
based upon the changes in a specified index.
Adjustment date – The date on which the interest rate changes for an
adjustable-rate mortgage (ARM).
Adjustment period – The period that elapses between the adjustment
dates for an adjustable-rate mortgage (ARM).
Amortization – The repayment of a mortgage loan by installments with
regular payments to cover the principal and interest.
Amortization term – The amount of time required to amortize the
mortgage loan. The amortization term is expressed as a number of
months. For example, for a 30-year fixed-rate mortgage, the
amortization term is 360 months.
Annual percentage rate (APR) – The cost of a mortgage stated as a
yearly rate; includes such items as interest, mortgage insurance,
and loan origination fee (points).
Application – A form, commonly referred to as a 1003 form, used to
apply for a mortgage and to provide information regarding a
prospective mortgagor and the proposed security.
Appraisal – A written analysis of the estimated value of a property
prepared by a qualified appraiser.
Appraiser – A person qualified by education, training, and
experience to estimate the value of real property and personal
Appreciation – An increase in the value of a property due to changes
in market conditions or other causes. The opposite of
Asset – Anything of monetary value that is owned by a person. Assets
include real property, personal property, and enforceable claims
against others (including bank accounts, stocks, mutual funds, and
Assignment – The transfer of a mortgage from one person to
Assumable mortgage – A mortgage that can be taken over (“assumed”)
by the buyer when a home is sold.
Assumption – The transfer of the seller’s existing mortgage to the
Assumption clause – A provision in an assumable mortgage that allows
a buyer to assume responsibility for the mortgage from the seller.
The loan does not need to be paid in full by the original borrower
upon sale or transfer of the property.
Assumption fee – The fee paid to a lender (usually by the purchaser
of real property) resulting from the assumption of an existing
Balance sheet – A financial statement that shows assets,
liabilities, and net worth as of a specific date.
Balloon mortgage – A mortgage that has level monthly payments that
will amortize it over a stated term but that provides for a lump sum
payment to be due at the end of an earlier specified term.
Balloon payment – The final lump sum payment that is made at the
maturity date of a balloon mortgage.
Bankrupt – A person, firm, or corporation that, through a court
proceeding, is relieved from the payment of all debts after the
surrender of all assets to a court-appointed trustee.
Bankruptcy – A proceeding in a federal court in which a debtor who
owes more than his or her assets can relieve the debts by
transferring his or her assets to a trustee.
Before-tax income – Income before taxes are deducted.
Beneficiary – The person designated to receive the income from a
trust, estate, or a deed of trust.
Binder – A preliminary agreement, secured by the payment of an
earnest money deposit, under which a buyer offers to purchase real
Bi-weekly payment mortgage – A mortgage that requires payments to
reduce the debt every two weeks (instead of the standard monthly
payment schedule). The 26 (or possibly 27) biweekly payments are
each equal to one-half of the monthly payment that would be required
if the loan were a standard 30-year fixed-rate mortgage, and they
are usually drafted from the borrower’s bank account. The result for
the borrower is a substantial savings in interest.
Blanket mortgage – The mortgage that is secured by a cooperative
project, as opposed to the share loans on individual units within
Bond – An interest-bearing certificate of debt with a maturity date.
An obligation of a government or business corporation. A real estate
bond is a written obligation usually secured by a mortgage or a deed
Breach – A violation of any legal obligation.
Bridge loan – A form of second trust that is collateralized by the
borrower’s present home (which is usually for sale) in a manner that
allows the proceeds to be used for closing on a new house before the
present home is sold. Also known as “swing loan.”
Broker – A person who, for a commission or a fee, brings parties
together and assists in negotiating contracts between them.
Buydown mortgage – A temporary buydown is a mortgage on which an
initial lump sum payment is made by any party to reduce a borrower’s
monthly payments during the first few years of a mortgage. A
permanent buydown reduces the interest rate over the entire life of
Call option -A provision in the mortgage that gives the mortgagee
the right to call the mortgage due and payable at the end of a
specified period for whatever reason.
Cap – A provision of an adjustable-rate mortgage (ARM) that limits
how much the interest rate or mortgage payments may increase or
Capital improvement – that adds to its value and useful
Cash-out refinance – A refinance transaction in which the amount of
money received from the new loan exceeds the total of the money
needed to repay the existing first mortgage, closing costs, points,
and the amount required to satisfy any outstanding subordinate
mortgage liens. In other words, a refinance transaction in which the
borrower receives additional cash that can be used for any
Certificate of Eligibility – A document issued by the federal
government certifying a veteran’s eligibility for a Department of
Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV) – A document issued by the
Department of Veterans Affairs (VA) that establishes the maximum
value and loan amount for a VA mortgage.
Certificate of title – A statement provided by an abstract company,
title company, or attorney stating that the title to real estate is
legally held by the current owner.
Chain of title – The history of all of the documents that transfer
title to a parcel of real property, starting with the earliest
existing document and ending with the most recent.
Change frequency – The frequency (in months) of payment and/or
interest rate changes in an adjustable-rate mortgage (ARM).
Clear title – A title that is free of liens or legal questions as to
ownership of the property.
Closing – A meeting at which a sale of a property is finalized by
the buyer signing the mortgage documents and paying closing costs.
Also called “settlement.”
Closing cost item – A fee or amount that a home buyer must pay at
closing for a single service, tax, or product. Closing costs are
made up of individual closing cost items such as origination fees
and attorney’s fees. Many closing cost items are included as
numbered items on the HUD-1 statement.
Closing costs – Expenses (over and above the price of the property)
incurred by buyers and sellers in transferring ownership of a
property. Closing costs normally include an origination fee, an
attorney’s fee, taxes, an amount placed in escrow, and charges for
obtaining title insurance and a survey. Closing costs percentage
will vary according to the area of the country.
Closing statement – Also referred to as the HUD1. The final
statement of costs incurred to close on a loan or to purchase a
Cloud on title – Any conditions revealed by a title search that
adversely affect the title to real estate. Usually clouds on title
cannot be removed except by a quitclaim deed, release, or court
Collateral – An asset (such as a car or a home) that guarantees the
repayment of a loan. The borrower risks losing the asset if the loan
is not repaid according to the terms of the loan contract.
Collection – The efforts used to bring a delinquent mortgage current
and to file the necessary notices to proceed with foreclosure when
Co-maker – A person who signs a promissory note along with the
borrower. A co-maker’s signature guarantees that the loan will be
repaid, because the borrower and the co-maker are equally
responsible for the repayment. See endorser.
Commission – The fee charged by a broker or agent for negotiating a
real estate or loan transaction. A commission is generally a
percentage of the price of the property or loan.
Commitment letter – A formal offer by a lender stating the terms
under which it agrees to lend money to a home buyer. Also known as a
Common areas – Those portions of a building, land, and amenities
owned (or managed) by a planned unit development (PUD) or
condominium project’s homeowners’ association (or a cooperative
project’s cooperative corporation) that are used by all of the unit
owners, who share in the common expenses of their operation and
maintenance. Common areas include swimming pools, tennis courts, and
other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress, etc.
Community Home Improvement Mortgage Loan – An alternative financing
option that allows low- and moderate-income home buyers to obtain 95
percent financing for the purchase and improvement of a home in need
of modest repairs. The repair work can account for as much as 30
percent of the appraised value.
Community property – In some western and south western states, a
form of ownership under which property acquired during a marriage is
presumed to be owned jointly unless acquired as separate property of
Comparables – An abbreviation for “comparable properties”; used for
comparative purposes in the appraisal process. Comparables are
properties like the property under consideration; they have
reasonably the same size, location , and amenities and have recently
been sold. Comparables help the appraiser determine the approximate
fair market value of the subject property.
Condominium – A real estate project in which each unit owner has
title to a unit in a building, an undivided interest in the common
areas of the project, and sometimes the exclusive use of certain
limited common areas.
Condominium conversion – Changing the ownership of an existing
building (usually a rental project) to the condominium form of
Construction loan – 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.
Consumer reporting agency (or bureau) – An organization that
prepares reports that are used by lenders to determine a potential
borrower’s credit history. The agency obtains data for these reports
from a credit repository as well as from other sources.
Contingency – A condition that must be met before a contract is
legally binding. For example, home purchasers often include a
contingency that specifies that the contract is not binding until
the purchaser obtains a satisfactory home inspection report from a
qualified home inspector.
Contract – An oral or written agreement to do or not to do a certain
Conventional mortgage – A mortgage that is not insured or guaranteed
by the federal government.
Convertibility clause – A provision in some adjustable-rate
mortgages (ARMs) that allows the borrower to change the ARM to a
fixed-rate mortgage at specified timeframes after loan
Convertible ARM – An adjustable-rate mortgage (ARM) that can be
converted to a fixed-rate mortgage under specified
Cooperative (co-op) – A type of multiple ownership in which the
residents of a multiunit housing complex own shares in the
cooperative corporation that owns the property, giving each resident
the right to occupy a specific apartment or unit.
Corporate relocation – Arrangements under which an employer moves an
employee to another area as part of the employer’s normal course of
business or under which it transfers a substantial part or all of
its operations and employees to another area because it is
relocating its headquarters or expanding its office
Cost of funds index (COFI) – An index that is used to determine
interest rate changes for certain adjustable-rate mortgage (ARM)
plans. It represents the weighted-average cost of savings,
borrowings, and advances of the 11th District members of the Federal
Home Loan Bank of San Francisco.
Covenant – A clause in a mortgage that obligates or restricts the
borrower and that, if violated, can result in foreclosure.
Credit – An agreement in which a borrower receives something of
value in exchange for a promise to repay the lender at a later
Credit history – A record of an individual’s open and fully repaid
debts. A credit history helps a lender to determine whether a
potential borrower has a history of repaying debts in a timely
Credit report – A report of an individual’s credit history prepared
by a credit bureau and used by a lender in determining a loan
applicant’s creditworthiness. See merged credit report.
Credit repository – An organization that gathers, records, updates,
and stores financial and public records information about the
payment records of individuals who are being considered for
Debt – An amount owed to another.
Deed – The legal document conveying title to a property.
Deed-in-lieu – A deed given by a mortgagor to the mortgagee to
satisfy a debt and avoid foreclosure.
Deed of trust – The document used in some states instead of a
mortgage; title is conveyed to a trustee.
Default – Failure to make mortgage payments on a timely basis or to
comply with other requirements of a mortgage.
Delinquency – Failure to make mortgage payments when mortgage
payments are due.
Deposit – A sum of money given to bind the sale of real estate, or a
sum of money given to ensure payment or an advance of funds in the
processing of a loan.
Depreciation – A decline in the value of property; the opposite of
Down payment – The part of the purchase price of a property that the
buyer pays in cash and does not finance with a mortgage.
Due-on-sale provision – A provision in a mortgage that allows the
lender to demand repayment in full if the borrower sells the
property that serves as security for the mortgage.
Earnest money deposit – A deposit made by the potential home buyer
to show that he or she is serious about buying the house.
Easement – A right of way giving persons other than the owner access
to or over a property.
Effective age – An appraiser’s estimate of the physical condition of
a building. The actual age of a building may be shorter or longer
than its effective age.
Effective gross income – Normal annual income including overtime
that is regular or guaranteed. The income may be from more than one
source. Salary is generally the principal source, but other income
may qualify if it is significant and stable.
Encumbrance – Anything that affects or limits the fee simple title
to a property, such as mortgages, leases, easements, or
Endorser – A person who signs ownership interest over to another
party. Contrast with co-maker.
Equal Credit Opportunity Act (ECOA) – A federal law that requires
lenders and other creditors to make credit equally available without
discrimination based on race, color, religion, national origin, age,
sex, marital status, or receipt of income from public assistance
Equity – A homeowner’s financial interest in a property. Equity is
the difference between the fair market value of the property and the
amount still owed on its mortgage.
Escrow – An item of value, money, or documents deposited with a
third party to be delivered upon the fulfillment of a condition. For
example, the deposit by a borrower with the lender of funds to pay
taxes and insurance premiums when they become due, or the deposit of
funds or documents with an attorney or escrow agent to be disbursed
upon the closing of a sale of real estate.
Escrow account – The account in which a mortgage servicer holds the
borrower’s escrow payments prior to paying property
Escrow analysis – The periodic examination of escrow accounts to
determine if current monthly deposits will provide sufficient funds
to pay taxes, insurance, and other bills when due.
Escrow collections – Funds collected by the servicer and set aside
in an escrow account to pay the borrower’s property taxes, mortgage
insurance, and hazard insurance.
Escrow disbursements – The use of escrow funds to pay real estate
taxes, hazard insurance, mortgage insurance, and other property
expenses as they become due.
Escrow payment – The portion of a mortgagor’s monthly payment that
is held by the servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as they become due. Known
as “impounds” or “reserves” in some states.
Estate – The ownership interest of an individual in real property.
The sum total of all the real property and personal property owned
by an individual at time of death.
Eviction – The lawful expulsion of an occupant from real
Examination of title – The report on the title of a property from
the public records or an abstract of the title.
Fair Credit Reporting Act – A consumer protection law that regulates
the disclosure of consumer credit reports by consumer/credit
reporting agencies and establishes procedures for correcting
mistakes on one’s credit record.
Fair market value – The highest price that a buyer, willing but not
compelled to buy, would pay, and the lowest a seller, willing but
not compelled to sell, would accept.
Fannie Mae – A congressionally chartered, shareholder-owned company,
that is the nation’s largest supplier of home mortgage
Fannie 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
Federal Housing Administration (FHA) – An agency of the U.S.
Department of Housing and Urban Development (HUD). Its main activity
is the insuring of residential mortgage loans made by private
lenders. The FHA sets standards for construction and underwriting
but does not lend money or plan or construct housing.
Fee simple – The greatest possible interest a person can have in
FHA mortgage – A mortgage that is insured by the Federal Housing
Administration (FHA). Also known as a government mortgage.
Finder’s fee – A fee or commission paid to a mortgage broker for
finding a mortgage loan for a prospective borrower.
First mortgage – A mortgage that is the primary lien against a
Fixed-rate mortgage (FRM) – A mortgage in which the interest rate
does not change during the entire term of the loan.
Flood insurance – Insurance that compensates for physical property
damage resulting from flooding. It is required for properties
located in federally designated flood areas.
Foreclosure – The legal process by which a borrower in default under
a mortgage is deprived of his or her interest in the mortgaged
property. This usually involves a forced sale of the property at
public auction with the proceeds of the sale being applied to the
Freddie Mac – Federal Home Loan Mortgage Corporation�(FHLMC) – is a
public government sponsored enterprise�(GSE) created to expand the
secondary market for mortgages in the US
Fully amortized ARM – An adjustable-rate mortgage (ARM) with a
monthly payment that is sufficient to amortize the remaining
balance, at the interest accrual rate, over the amortization
Good faith estimate (GFE)- An estimate of charges which a borrower
is likely to incur in connection with a settlement.
Hazard insurance – Insurance protecting against loss to real estate
caused by fire, some natural causes, vandalism, etc., depending upon
the terms of the policy.
Housing ratio – The ratio of the monthly housing payment in total
(PITI – Principal, Interest, Taxes, and Insurance) divided by the
gross monthly income. This ratio is sometimes referred to as the top
ratio or front end ratio.
HUD – The U.S. Department of Housing and Urban Development.
Index – A published interest rate to which the interest rate on an
Adjustable Rate Mortgage (ARM) is tied. Some commonly used indeces
include the 1 Year treasury Bill, 6 Month LIBOR, and the 11th
District Cost of Funds (COFI).
Lien – An encumbrance against property for money due, either
voluntary or involuntary.
Lifetime cap – A provision of an ARM that limits the highest rate
that can occur over the life of the loan.
Loan to value ratio (LTV) – The ratio of the amount of your loan to
the appraised value of the home. The LTV will affect programs
available to the borrower and generally, the lower the LTV the more
favorable the terms of the programs offered by lenders.
Lock-in – A written agreement guaranteeing the home buyer a
specified interest rate provided the loan is closed within a set
period of time. The lock-in also usually specifies the number of
points to be paid at closing.
Margin – The number of percentage points a lender adds to the index
value to calculate the ARM interest rate at each adjustment period.
A representative margin would be 2.75%.
Mortgage – A legal document that pledges a property to the lender as
security for payment of a debt
Mortgage disability insurance – A disability insurance policy which
will pay the monthly mortgage payment in the event of a covered
disability of an insured borrower for a specified period of
Mortgage insurance (MI) – Insurance written by an independent
mortgage insurance company protecting the mortgage lender against
loss incurred by a mortgage default. Usually required for loans with
an LTV of 80.01% or higher.
Mortgagee – person or company who receives the mortgage as a pledge
for repayment of the loan. The mortgage lender.
Mortgagor – The mortgage borrower who gives the mortgage as a pledge
Non-conforming loan – Also called a jumbo loan. Conventional home
mortgages not eligible for sale and delivery to either Fannie Mae
(FNMA) or Freddie Mac (FHLMC) because of various reasons, including
loan amount, loan characteristics or underwriting guidelines.
Non-conforming loans usually incur a rate and origination fee
Note – A written agreement containing a promise of the signer to pay
to a named person, or order, or bearer, a definite sum of money at a
specified date or on demand.
Origination fee – A fee imposed by a lender to cover certain
processing expenses in connection with making a real estate loan.
Usually a percentage of the amount loaned..
Owner financing – A property purchase transaction in which the
property seller provides all or part of the financing.
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
PITI – Principal, interest, taxes and insurance, the components of a
monthly mortgage payment.
Points – Charges levied by the mortgage lender and usually payable
at closing. One point represents 1% of the face value of the
Prepaids – Those expenses of property which are paid in advance of
their due date and will usually be prorated upon sale, such as
taxes, insurance, rent, etc.
Prepayment penalty – A charge imposed by a mortgage lender on a
borrower who wants to pay off part or all of a mortgage loan in
advance of schedule.
Principal – Amount of debt, not including interest. The face value
of a note or mortgage.
Private mortgage insurance (PMI) – Insurance provided by
nongovernment 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
Qualifying ratios – The ratio of your fixed monthly expenses to your
gross monthly income, used to determine how much you can afford to
borrow. The fixed monthly expenses would include PITI along with
other obligations such as student loans, car loans, or credit card
Rate cap – A limit on how much the interest rate can change, either
at each adjustment period or over the life of the loan.
Rate lock-in – A written agreement in which the lender guarantees
the borrower a specified interest rate, provided the loan closes
within a set period of time.
Rebate – Compensation received from a wholesale lender which can be
used to cover closing costs or as a refund to the borrower. Loans
with rebates often carry higher interest rates than loans with
“points” (see above).
Refinancing – The process of paying off one loan with the proceeds
from a new loan using the same property as security.
Residential mortgage credit report (RMCR) – A report requested by
your lender that utilizes information from at least two of the three
national credit bureaus and information provided on your loan
Seller carry back – An agreement in which the owner of a property
provides financing, often in combination with an assumed
Survey – A print showing the measurements of the boundaries of a
parcel of land, together with the location of all improvements on
the land and sometimes its area and topography.
Tenants-in-common – An undivided interest in property taken by two
or more persons. The interest need not be equal. Upon death of one
or more persons, there is no right of survivorship.
Title – The evidence one has of right to possession of land.
Title insurance – Insurance against loss resulting from defects of
title to a specifically described parcel of real property.
Title search – An investigation into the history of ownership of a
property to check for liens, unpaid claims, restrictions or
problems, to prove that the seller can transfer free and clear
Total debt ratio – Monthly debt and housing payments divided by
gross monthly income. Also known as Obligations-to-Income Ratio or
Truth-in-Lending Act – A federal law requiring a disclosure of
credit terms using a standard format. This is intended to facilitate
comparisons between the lending terms of different financial
Veterans Administration (VA) – A government agency guaranteeing
mortgage loans with no down payment to qualified veterans.