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MORTGAGE DICTIONARY

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Acceleration Clause
A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.

Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index plus a constant margin, within certain parameters. See Cap (interest rate).

Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Amortization
Repayment of a loan by installment payments. As the payments are made, the debt is reduced so that at the end of the fixed period or term, no money will be owed.

Annual Percentage Rate (APR)
The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.

Appraisal
A report made by a qualified person as to the value of a property as of a given date.

Assessed Value
The value placed on a piece of real estate by the taxing authority for the purpose of determining property taxes. The assessed value is not always the same as the appraised value.

Asset
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

Assumption of Mortgage
The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.

Balloon Mortgage
A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term.

Broker
The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buydown
Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.

Cap (interest rate)
The maximum interest rate increase allowable on an adjustable rate mortgage.

Cap (payment rate)
The maximum payment amount increase allowable on an adjustable rate mortgage. May result in negative amortization. See Option ARM.

CC&Rs
The covenants, conditions and restrictions (CC&Rs) are the governing documents that dictate how the homeowners association operates and what rules the owners -- and their tenants and guests -- must obey. These legal documents might also be called the bylaws, the master deed, the houses rules or another name. These documents and rules are legally enforceable by the homeowners association, unless a specific provision conflicts with federal, state or local laws.

Certificate of Eligibility
A document issued by the federal government certifying a veteranÕs 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 that shows ownership of property, stating that the seller has clear legal title.

Closing
The concluding day of the real estate transaction, when title and deed pass from seller to buyer.

Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called settlement costs.

Closing Statement
A financial disclosure provided by an escrow officer giving an account of all funds received and expected by the close of escrow.

Commission
An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction or mortgage.

Commitment
A written agreement agreement between a lender and a borrower to lend money at a future date, subject to certain conditions.

Community Property
A form of vesting title to property owned by a husband and wife which they intend to own together. It is distiguished from separate property which is property acquired before marriage, by separate gift or bequest, or is agreed in writing to be owned by one spouse.

Comparables
Similar properties used for comparison purposes in the appraisal process to determine the fair market value of a property. These properties will be reasonably the same size and location, with similar amenities and characteristics.

Condominium
Ownership of a single unit in a multi-unit building or complex of buildings plus a share of ownership of the common areas.

Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

Contingency
A condition that must be met for a contract or a commitment to remain binding.

Conventional Mortgage
Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant.

Conversion Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Convey
To transfer real estate from one person to another.

Cooperative (Co-op)
A form of multiple ownership in which a corporation or business trust holds title to a property and grants occupancy rights to shareholders.

Credit Report
The report to a prospective lender on the credit standing of a prospective borrower.

Credit Risk Score
A credit score measures a consumer's credit risk relative to the rest of the U.S. population, based on the individual's credit usage history. The score, ranging from 300 to 850, is calculated by a mathematical formula that evaluates many types of information that are on your credit report. Higher scores represents lower credit risks, which typically equate to better loan terms. Credit scores are critical in the mortgage loan underwriting process.

Deed
A legal document by which title to property is transferred.

Deed of Trust
The document used in some states, including California, instead of a mortgage.

Default
Failure to fulfill the terms as agreed to in the loan agreement.

Delinquency
Failure to make payments on time.

Deposit
A sum of money given to bind the sale of real estate. See Earnest Money.

Down Payment
The difference between the sale price of a property and the mortgage amount.

Due-On-Sale
A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.

Earnest Money
An initial deposit provided by the buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.

Easement
A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property.

Encumbrance
Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid back taxes.

Equity
The difference between the current market value and the outstanding liens against a property.

Escrow
Money or property put into the custody of a neutral third party for delivery only after the fulfillment of certain conditions.

Escrow Account
A trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums. Also known as an impound account.

Escrow Disbursements
The use of escrow account funds to pay real estate taxes and hazard insurance as they become due.

Escrow Payment
The part of a mortgagorÕs monthly payment that is held by the servicer to pay for taxes and hazard insurance as they become due

Fannie Mae (FNMA)
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Fee Simple
estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FICO Score
FICO¨ scores are the most widely used credit score in U.S. credit markets. See Credit Risk Score.

Finance Charge
The total cost a borrower pays to obtain credit according to Regulation Z.

First Mortgage
A mortgage that is the primary lien against a property.

Fixed-Rates Mortgage
A mortgage with an interest rate and monthly payments that remain constant over the life of the loan.

Fixture
Property, such as a hot water heater or plumbing fixture, that has become permanently attached to a piece of real estate and goes with the property when it is sold.

Flood Certification
An independent report required by all lenders to determine whether a property is located in a FEMA flood hazard zone, which would then require a federally mandated flood insurance policy.

Foreclosure
A legal procedure in which property mortgaged as security for a loan is reconveyed to the lender to pay the defaulting borrower's debt.

Freddie Mac (FHMC)
A congressionally chartered, shareholder-owned company that is the nation's two largest suppliers of home mortgage funds.

Ginnie Mae (GNMA)
A U.S. government-owned corporation whose chief function is to help finance government-guaranteed home mortgages through the sale of bonds.

Gross Income
Total earnings prior to any payroll deductions or income tax.

Hazard Insurance
An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.

Homeowner's Insurance
See Hazard Insurance.

Housing Expense
Total payments covering principal, interest, taxes, insurance, and mortgage insurance if applicable. See PITI

Housing Expense Ratio
The percentage of gross monthly income compared to the housing expense.

HUD-1 Form
See Real Estate Settlement Statement.

Hybrid ARM (3/1, 5/1, 7/1, 10/1)
A mortgage that offers an initial fixed rate period for 3, 5, 7, or 10 years followed by an adjustable rate period for the duration of the 30 year term.

Impound Account
See Escrow Account

Income Property
Real estate that is owned for investment purposes and not used as the owner's residence.

Index
An index is a published number or percentage, such as the average interest rate or yield on Treasury bills, that is used to calculate rate adjustments on an ARM.

Initial Interest Rate
The original or start rate on an ARM.

Installment
The regular periodic payment that a borrower agrees to make to a lender.

Interest
A charge paid for the use of money.

Interest Rate Ceiling
see Cap (interest rate)

Interest Rate Floor
For an adjustable-rate mortgage the minimum interest rate as specified in the note.

Joint tenancy
An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors automatically take the decedentÕs interest in the property.

Land Contract
When the buyer agrees to make payments directly to the seller at pre-negotiated terms. The seller agrees to deed the property to the buyer upon completion of the agreement.

Liabilities
A person's financial obligations, such as credit card balances, car loans, and mortgages.

Lien
A legal claim on a property used as security for a debt.

Lifetime Rate Cap
For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase over the life of the loan.

Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount over a specific period of time..

Liquid Asset
Cash or an asset that is easily converted into cash, such as stock or mutual funds.

Loan
A sum of borrowed money (principal) that is generally repaid with interest.

Loan Commitment
A written promise by a lender to make a loan under specific terms.

Loan-To-Value Ratio
The relationship between the amount of the mortgage and and the current property value of the property, usually shown as a percentage.

Lock-In Period
The guarantee of an interest rate for a specified period of time by a lender.

Margin
The number of percentage points added to the index to calculate the rate at each adjustment on an ARM.

Market Value
The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure.

Maturity
The date on which the principal balance of a loan becomes due and payable on a balloon mortgage or the date on which the principal balance is fully repaid on an amortized loan.

Mortgage
A contract in which a borrower's property is pledged as security for a loan which is to be repaid on an installment basis.

Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Mortgage Insurance
A policy that insures the lender against loss caused by a mortgagor's default. Mortgage insurance can be issued by a private company or by a government agency.

Mortgagee
The lender in a mortgage contract.

Mortgagor
The borrower in a mortgage contract.

Negative Amortization
A loan in which the outstanding principal balance may go up instead of down if the monthly minimum payments are not large enough to cover the full amount of interest due. Also called deferred interest.

Net Worth
The difference betweet all of a person's assets and their liabilities.

No Terms Listed

Non Liquid Asset
An asset that cannot easily be converted into cash, such as real estate.

Note
A legal document that obligates a borrower to repay a loan at a stated interest rate over a specified period of time.

Offer to Purchase
A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract.

Option ARM
See Negative Amortization

Origination Fee
A fee sometimes charged in association with obtaining a mortgage, usually calculated as a percentage of the loan amount. See Point.

Owner Financing
A purchase in which the seller provides all or part of the financing.

Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM).

Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period on an option ARM.

Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index has moved.

PITI
An acronym for payments that cover principal, interest, taxes, insurance, and mortgage insurance if applicable. See Housing Expense

Planned Unit Development (PUD)
A PUD is both a type of building development as well as a regulatory process, most commonly a designed grouping of varied and compatible land uses, such as housing, recreation, commercial centers, and industrial parks, all within one contained development or subdivision.

Plat
A map of a piece of land showing boundary lines, streets, actual measurements and easements.

PMI (Private Mortgage Insurance)
A policy written by a private company that insures the lender against loss caused by a mortgagor's default.

Point
A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point or origination fee.

Pre-Approval
A commitment by a lender to extend credit provided that specific conditions are met.

Pre-Qualification
A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations. This is not a guarantee or commitment by a lender to extend credit.

Prepayment Penalty
A charge paid to the lender by the borrower if a mortgage loan is fully repaid within the first 3 to 5 years.

Prime Rate
The interest rate charged by banks to their preferred corporate customers.

Principal
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Principal, Interest, Taxes, and Insurance
See PITI

Purchase Agreement
A document in which the purchaser agrees to buy a property and a seller agrees to sell under stated terms and conditions. Also called a sales contract.

Qualifying Ratios
A percentage of a borrowers income that is allocated to the repayment of debt.

Rate Lock
See Lock-in Period.

Real Estate Agent
A person licensed to negotiate and transact the sale or purchase of real estate.

Real Estate Settlement Statement
Final settlement statement often referred to as the HUD-1, used to itemize buyer, seller, broker, and lender charges and credits at closing.

Realtor
A real estate broker or sales associate affiliated with the National Association of Realtors.

Recording
The noting in the county registrarÕs office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, thereby making it a part of the public record.

Recording Fee
The charges made by the county registrar to record legal documents.

Refinancing
Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.

Regulation Z
A Federal Reserve Board rule covering provisions of the Consumer Credit Protection Act of 1968. Also known as the Truth in Lending Act. The regulation stipulates that lenders must disclose the true cost of loans.

RESPA (Real Estate Settlement Procedures Act)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Revolving Liability
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit.

Second Mortgage
A loan on a property which already has an existing first mortgage. The second mortgage is subordinate to the first.

Secondary Mortgage Market
The buying and selling of existing mortgages.

Security
The property that will be pledged as collateral for a loan.

Seller Carry-back
An agreement in which the owner of a property provides financingto the buyer. See Owner Financing.

Servicer
An institution that collects principal and interest payments from borrowers and manages borrowersÕ escrow accounts.

Survey
A map prepared by an engineer or surveyor charting a particular piece of real estate.

Tenancy in Common
Co-ownership in a property by two or more persons, each of whom owns a specified percentage of the whole property.

Title
Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.

Title Insurance Policy
Protection against financial loss arising from defects in the chain of title occurring before purchase.

Title Search
A check of public records to disclose the past and current facts regarding ownership of a particular piece of property.

Transfer Tax
Ciity, county or state taxes imposed when ownership of property passes from one person to another.

Truth-In-Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges. See Regulation Z

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender.

VA Loan
A mortgage guaranteed by the Department of Veterans Affairs available only to individuals qualified by military service.

VA Mortgage Funding Fee
A fe of up to 1.875% (depending on the size of the down payment) paid on a VA-backed loan, paid at closing or added to the amount financed.

Variable Rate Mortgage (VRM)
See Adjustable Rate Mortgage (ARM)

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.

Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). This is the interest paid for that short term loan.