Glossary of Terms
- Acceptance - A buyer's or seller's agreement to
enter into a contract and be bound by the terms of the offer.
- Additional Principal Payment - A payment made
by a borrower of more than the scheduled principal amount due, in order to
reduce the outstanding balance on the loan, to save on interest over the
life of the loan and/or pay off the loan early.
- Adjustable Rate Mortgage (ARM) - stands for
Adjustable Rate Mortgage, also referred to as a Variable Rate Mortgage.
They both mean the same thing. An ARM is a mortgage with an interest rate
that adjusts periodically to reflect changes in market conditions. Your
mortgage payments are adjusted up or down (usually on an annual basis) as
the interest rate changes. To protect you in a rising interest market,
rate increases are limited (usually 2 percentage points annually; 6
percentage points over the life of the loan).
- Amenity - A
feature of real property that enhances its attractiveness and increases
the occupant's or user's satisfaction, although the feature is not
essential to the property's use. Natural amenities include a pleasant or
desirable location near water, scenic views, etc. Man-made amenities
include swimming pools, tennis courts, community buildings, and other
- Amortization - The gradual repayment of a home
loan by periodic installments.
- Amortization Schedule - A timetable for payment
of a home loan. An amortization schedule shows the amount of each payment
applied to interest and principal and the remaining balance after each
payment is made.
- Amortization Term (period) - The amount of time
it takes to pay off the loan. The amortization term is expressed as a
number of months. For example, for a 30 year fixed rate loan, the
amortization term is 360 months.
- Amortize - To repay a loan with regular
payments that cover both principal and interest.
- Annual Percentage Rate (APR) - stands for
Annual Percentage Rate. This refers to the interest rate that reflects the
actual cost of a mortgage as a yearly rate. Because APR includes points
and other costs associated with the mortgage, it's usually higher than the
advertised simple interest rate. The APR more accurately reflects what
you'll be paying and allows you to compare different mortgages based on
- Application (or 1003) - A form to be completed
by a home loan applicant with the lender's assistance to provide pertinent
information about a prospective borrower's employment, income, assets,
debts and other financial information, about the purpose of the home loan,
and about the property securing the home loan. Lenders also sometimes call
it a 1003-the form number of Fannie Mae's standard application
- Application Fee - A fee usually paid at the
time an application is given to a lender for helping to complete and
review an application. Some lenders collect fees for a property appraisal
and a credit report, instead of an application fee, at the time of
- Appraisal - An estimate of the value of a home,
made by a professional appraiser. The maximum amount of the mortgage is
usually based on the appraisal.
- Appraised Value - The dollar
figure for a property's estimated fair market value, based on an
appraiser's knowledge, experience, and analysis of the property and
comparable properties near by.
- Appraiser - A person qualified by education,
training, and experience to estimate the value of real
- Appreciation - An increase in the value of a
property due to changes in market conditions or other causes. Inflation,
increased demand, home improvement, and sweat equity are all causes of
appreciation. The opposite of depreciation.
- Assessed Value - The value used to determine
property taxes, based on a public tax assessor's opinion. Contrast with
- Assessment - The amount of tax due to local
government. May also refer to the amount due to local government or to
common owners of a property (e.g., a homeowner's association) for a
special payment to cover expenses for improvements or maintenance, such as
new sewers or roads.
- Assessment Rolls - A public record of the
assessed value of property in the taxing jurisdiction.
- Assessor - A public official who establishes
the value of a property for taxation purposes.
- 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 so on).
- Assumable Loan - A home loan that allows a new
purchaser of the home to take over ("assume") the loan obligations of the
seller when a home is sold.
- Assumption Clause - A provision in an assumable
loan that allows a buyer to assume responsibility for the home loan from
the seller. The loan does not need to be paid in full by the original
borrower (seller) upon sale or transfer of the property.
- Assumption Fee - The fee paid to a lender
(usually by the buyer) for the lender's agreement to start collecting
payment from the buyer instead of the original borrower
- Balance Sheet - A financial statement that
shows an individual's assets, liabilities, and net worth as of a specific
- Balloon Loan - A loan that has level monthly
payments that will amortize it over a stated term (e.g., 30 years) but
that requires a lump sum payment of the entire principal balance at the
end of a shorter term (e.g., 10 years).
- Balloon Payment - The final lump sum payment
that is made at the end of the shorter term for a balloon loan and pays
the loan in full.
- Bankrupt - A person, firm, or corporation that
is financially unable to pay debts when due. The debtor seeks relief
through a court proceeding to work out a payment schedule or erase debts.
In some cases, the debtor must surrender control of all assets to a
- Bankruptcy - A proceeding in a federal court in
which a debtor who is financially unable to pay debts when due seeks
relief to work out a payment schedule or erase debts.
- Bill Of Sale - A written document that
transfers title to personal property from seller to buyer.
- Biweekly Payment Loan - A loan 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 loan, and they are usually
drafted from the borrower's bank account. The result for the borrower is
faster amortization leading to substantial interest savings from faster
- Bond - An interest-bearing certificate of debt
with a maturity date. A real estate bond is a written obligation
usually secured by a mortgage or a deed of trust.
- Breach - A violation of terms of any legal
- Break Even Point - Point at which total income
equals total expenses.
- Bridge Loan - A type of mortgage financing
between the termination of one loan and the start of another loan. For
example, a mortgage secured by the borrower's present home (which is
usually up 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 a
- Broker - A person who is normally licensed by
the state and who, for a commission or a fee, assists in negotiating a
real estate transaction or negotiating the terms of a home loan. See
- Budget - A detailed plan of income and expenses
expected over a certain period of time. A budget can provide guidelines
for managing future investments and expenses.
- Building Code - Local regulations that specify
minimum structural requirements for design of, construction of, and
materials used in a home or office building. Building codes are based on
safety and health standards.
- Buydown Account - An account in which funds are
held so that they can be applied as part of the monthly loan payment as
each payment comes due during the period that an interest rate buydown
plan is in effect. For example, if a seller agrees to help reduce a
buyer's monthly payment during the first year of a loan, the seller may
put money in a buydown account which is then paid to the lender each month
to reduce the buyer's monthly payment. This is more commonly done through
a buydown paid directly to the lender at closing.
- Buydown - A temporary buydown gives a borrower
a reduced monthly payment during the first few years of a home loan and is
typically paid for in an initial lump sum made by the seller, lender, or
borrower. A permanent buydown is paid the same way but reduces the
interest rate over the entire life of a home loan.
- Call Option - A provision in a loan that gives
the lender the right to accelerate the debt, and require for full payment
of the loan immediately, at the end of a specified period or for specified
- Cap - A provision of an adjustable-rate
mortgage (ARM) that limits how much the interest rate or loan payments may
increase or decrease. In upward rate markets, it protects the borrower
from large increases in the interest rate or monthly payment. See lifetime
payment cap, lifetime rate cap, periodic payment cap, and periodic rate
- Capital - (1) Money used to create income,
either as an investment in a business or an income property. (2) The money
or property comprising the wealth owned or used by a person or business
enterprise. (3) The accumulated wealth of a person or business. (4) The
net worth of a business represented by the amount by which its assets
- Capital Expenditure - The cost of an
improvement made to extend the useful life of a property or to add to its
value, such as adding a room. The cost of repairing a property is not a
capital expenditure. Capital expenditures are appreciated over their
useful life; repairs are subtracted from income for the current
- Capital Improvement - Any structure or
component erected as a permanent improvement to real property that adds to
its value and useful life. See Capital Expenditure.
- Cash Available For Closing - Borrower funds
available to cover down payment and closing costs. If lending guidelines
require the borrower to have cash reserves at the time the loan closes or
that the down payment come from certain sources, borrower's cash available
for closing does not include cash reserves or money from other
- Cash Flow Basis - This calculation shows when
your monthly payment savings exceed your estimated closing costs and
discount points. It does not consider the tax impact or differences in
principal balance reduction between your current loan and the refinance
suggestions. You can use the Amortization Schedule Calculator to compare
- Cash For Transaction - Enter the amount your
want to use toward closing costs (discount points and fees) and/or to
reduce your loan balance. In situations where your loan balance is above
the conforming amount, reducing the principal may allow you to get a lower
rate. Enter zero if you want a no-point loan and/or to finance the closing
- Cash-Out Refinance - A refinance transaction in
which the new loan amount exceeds the total of the principal balance of
the existing first mortgage and any secondary mortgages or liens, together
with closing costs and points for the new loan. This excess is usually
given to the borrower in cash and can often be used for debt
consolidation, home improvement, or any other purpose. The borrower
effectively borrows against the home equity.
- Ceiling - The maximum interest rate that can
accrue on a variable rate loan or adjustable rate mortgage (ARM). See
lifetime rate cap.
- Certificate Of Eligibility - A document issued
by the federal government certifying a veteran's eligibility for a
Department of Veterans Affairs (VA) loan.
- 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 loan, based on an
- Certificate Of Title - A statement provided by
an abstract company, title company, or attorney stating who holds title to
real estate based on the public record.
- Chain Of Title - The history of all of the
documents affecting title to a parcel of real property, starting with the
earliest existing document and ending with the most recent.
- Clear Title - A title that is marketable and is
free of liens or disputed legal questions as to ownership of the
- Closing - The conclusion or consummation of a
transaction. In real estate, closing includes the delivery of a deed, the
signing of notes and security instruments, and the disbursement of funds
necessary to the sale or loan transaction. Also referred to as
- Closing Cost Item - A fee or amount that a home buyer must pay at closing for a particular 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 settlement statement.
- Closing Costs - Various expenses (over and
above the price of the property) incurred by buyers and sellers in
transferring ownership of a property. Closing costs normally include items
such as broker's commissions, discount points, origination fees,
attorney's fees, taxes, title insurance premiums, escrow agent fees, and
charges for obtaining appraisals, inspections and surveys. Closing costs
will vary according to the area of the country. Lenders or real estate
professionals often provide estimates of closing costs to prospective home
buyers even before the HUD-1 settlement statement is delivered.
- Closing Statement - An accounting of funds
given to both buyer and seller before real estate is sold. See HUD-1
- Cloud On Title - An outstanding claim or lien,
revealed by a title search, that adversely affects the owner's title to
real estate. Usually, clouds on title cannot be removed except by a quit
claim deed, release, or court action.
- Coinsurance - A sharing of insurance risk
between the insurer and the insured. Coinsurance depends on the
relationship between the amount of the policy and a specified percentage
of the actual value of the property insured at the time of the
- Coinsurance Clause - A provision in a hazard
insurance policy stating the minimum amount of coverage that must be
maintained - as a percentage of the total value of the property - in order
for the insured to collect the full amount of a loss.
- Combined Loan To Value (CLTV) - The ratio of
the total amount borrowed on all mortgages against a property compared to
the appraised value of the property. For example, if you have an $80,000
1st mortgage and a $10,000 2nd mortgage on a home with an appraised value
of $100,000, the CLTV is 90% ($80,000+$10,000 = $90,000 / $100,000 =
- 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 (such as 3%,
5%, or 6%).
- Commitment Letter - A formal notification from
a lender stating that the borrower's loan has been conditionally approved
and specifying the terms under which lender agrees make the loan. Also
known as a "loan commitment."
- Common Area Assessments - Payments required of
individual unit owners in a condominium or planned unit development (PUD)
project for additional capital to defray homeowners' association costs and
expenses and to repair, replace, maintain, improve, or operate the common
areas of the project.
- 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 Property - In some Western and
Southwestern states, the law specifies that property acquired during a
marriage is presumed to be owned jointly by the husband and wife unless
acquired as separate property of one spouse or the other.
- Community Seconds? - An alternative financing
option for low- and moderate-income households under which an investor
purchases a first mortgage that has a subsidized second mortgage behind
it. The second mortgage may be issued by a state, county, or local housing
agency, foundation, or nonprofit organization. Payment on the second
mortgage is often deferred and carries a very low interest rate (or no
interest rate at all). Part or all of the second mortgage debt may be
forgiven depending on how long the buyer remains in the home.
- Comparables (comps) - 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.
- Compound Interest - Interest paid on the
principal balance and on the accrued and unpaid interest.
- Condemnation - (1) Declaration that a building
is unfit for use or is dangerous and must be destroyed; (2) taking of
private property for a public use (such as a park, street or school)
through an exercise of the right of eminent domain.
- Condominium - A real estate project in which
each unit owner has title to a unit in a multi-unit 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
- Condominium Hotel (condotel) - A condominium
project that has rental or registration desks, short-term occupancy, food
and telephone services, and daily cleaning services and that is operated
as a commercial hotel even though the units are individually
- Conforming Loan - A home loan with a maximum
loan amount of $252,700 that is eligible for purchase by FNMA and
- Construction loan - A short-term, interim loan
for financing the cost of home 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 lenders use to determine a
potential borrower's credit history. The agency obtains data for these
reports from a credit repository as well as from creditors such as
mortgage lenders, credit card companies, department stores,
- 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 do something.
- Conventional Loan - A home loan that is not
insured or guaranteed by the federal government. Contrast with government
loan. Can be for conforming or non-conforming loan amounts.
- Convertibility Clause - A provision in some
adjustable rate mortgages (ARMs) that allows the borrower to change the
ARM to a fixed rate loan at specified times during the life of the
- Convertible ARM - An adjustable rate mortgage
(ARM) that can be converted to a fixed rate loan under specified
- Cooperative (co-op) - A type of multiple
ownership in which the residents of a multi-unit 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 capacity.
- Co-Signer - A person who signs a promissory
note along with the borrower. A co-maker's signature helps to assure that
the loan will be repaid. The borrower and the co-maker are jointly
- for the repayment of the loan.
- 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. See adjustable-rate mortgage (ARM).
- Covenant - A promise in a mortgage or deed that
requires or prevents certain uses of the property that, if violated, may
result in loss or foreclosure of the property.
- Credit - An agreement in which a borrower
receives money or something of value in exchange for a promise to repay
the lender on specified terms at a later time.
- Credit History - An evaluation of an
individual's capacity and history of debt repayment. A credit history
helps a lender to determine whether a potential borrower is likely to
repay a loan in a timely manner.
- Credit Life Insurance - A type of insurance
that pays off a loan if one of the borrowers dies while the policy is in
- Credit Limit - The maximum amount that can be
borrowed under the home equity line of credit.
- Creditor - A person to whom money is
- Credit Rating - An expression of
creditworthiness based upon present financial condition and past credit
- Credit Report - A detailed account of the
credit, employment and residence history of an individual used by a
prospective lender to help determine creditworthiness. Credit reports also
list any judgments, tax liens, bankruptcies or similar matters of public
record entered against the individual.
- Credit Repository (credit bureau) - An
organization that gathers, records, updates, and stores financial and
public records information about the payment records of individuals who
are being considered for credit.
- Credit Scoring - Credit scores are numerical
values that rank individuals according to their credit history at a given
point in time. Your score is based on your past payment history, the
amount of credit you have outstanding, the amount of credit you have
available, and other factors. According to Fannie Mae--one of the major
investors in home loans, credit scores have proven to be very good
predictors of whether a borrower will repay his or her loan.
- Cumulative Interest - Total interest
- Current PITI - This is an abbreviation for a
monthly payment that includes principal, interest, taxes and insurance. In
mortgage lending it is common for the monthly mortgage payment to include
not only the principal and interest payment on the loan, but an escrow
amount for real estate taxes and hazard insurance as well.
- Curtailment - A payment that reduces the
principal balance of a loan.
- Debt - An amount owed to another. See
installment loan and revolving liability.
- Deed - The legal document conveying title to a
- Deed-In-Lieu - A deed given by a borrower to
the lender to satisfy a debt and avoid foreclosure. Also called a
- Deed Of Trust - The document used in some
states instead of a mortgage; title is vested in a trustee to secure
repayment of the loan.
- Default - Failure to make loan payments on a
timely basis or to comply with other requirements of a
- Delinquency - Failure to make mortgage payments
- 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. See earnest money deposit.
- Depreciation - A decline in the value of
property because of physical or economic changes such as wear and tear;
the opposite of appreciation.
- Discount Points - Amounts paid to the lender at
origination to lower the rate on the face of the note. See
- Document Preparation - This fee covers the
expenses associated with this process of preparing some of the legal
documents that you will be signing at the time of closing, such as the
mortgage, note, and truth-in-lending statement.
- Down Payment - The part of the purchase price
of a property that the buyer pays in cash and does not finance with a home
- Draw Period - The time period in which the
borrower may access and use a line of credit.
- Due-On-Sale Provision - A provision in a
mortgage home loan that allows the lender to demand repayment in full if
the borrower sells the property that serves as security for the
- Due-On-Transfer Provision - This terminology is
usually used for second mortgages. See due-on-sale provision.
- Earnest Money Deposit (Earnest Money) - 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 to persons other
than the owner to 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.
- Eminent Domain - The right of a government to
take private property for public use upon payment of fair compensation to
the owner. Eminent domain is the basis for condemnation
- Employer-Assisted Housing A special Fannie Mae
housing initiative that offers several different ways for employers to
work with local lenders to develop plans to assist their employees in
- Encroachment - An improvement that physically
intrudes or trespasses on another's property.
- Encumbrance - Anything that affects or limits
the fee simple title to a property, such as mortgages, leases, easements,
deeds, or restrictions.
- Endorser - A person who signs a check or
promissory note over to another party. Contrast with co-signer.
- 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
- Equity - The value of your home after the
outstanding balance of any loans are subtracted. If you make a 5 percent
down payment, you have 5 percent of the price of your home in equity. As
you make payments toward principal over time, the equity in your home
- Escrow - Can serve two purposes. 1)As a special
third-party account set up by the lender in which a portion of your
monthly payment funds are held to pay for taxes and insurance and other
items. 2)Escrow is most commonly known as a third party who carries out
the instructions of both the buyer and seller to handle the paperwork at
the settlement of a real estate purchase.
- Escrow (or Impound) Account - The account in
which a loan servicer holds the borrower's escrow payments prior to paying
property expenses, such as property taxes or homeowners
- 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
- Escrow Collections - Funds collected by the
loan servicer and set aside in an escrow account to pay borrower expenses
such as property taxes, mortgage insurance, and hazard homeowners
- Escrow Disbursements - The use of escrow funds
to pay real estate taxes, homeowners insurance, mortgage insurance, and
other property expenses as they become due.
- Escrow Payment - The portion of a borrower's
monthly payment that is held by the loan servicer to pay for taxes, hazard
homeowners insurance, mortgage insurance, lease payments, and other items
as they become due. Known as "impounds" or "reserves" in some
- 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 - A legal proceeding by a landlord to
recover possession of real property from the tenant.
- Examination Of Title - The report on the title
of a property from the public records or an abstract of the
- Exclusive Listing - A written contract that
gives a licensed real estate agent the exclusive right to sell a property
for a specified time, but reserving the owner's right to sell the property
alone without the payment of a commission.
- Fair Credit Reporting Act - A consumer
protection law that regulates the disclosure and use of consumer credit
information, establishes rules for credit reporting to consumer credit
reporting agencies, and establishes procedures for a consumer to view his
or her credit report and correct mistakes on it.
- Fair Market Value - The price that a buyer,
willing but not compelled to buy, and a seller, willing but not compelled
to sell, would agree on.
- Fannie Mae (Federal National Mortgage Association
FNMA) - A New York Stock Exchange company and the largest non-bank
financial services company in the world. It operates pursuant to a federal
charter and is the nation's largest source of financing for home
mortgages. It adds liquidity to the mortgage market by investing in home
loans through the country.
- 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 loan
underwriting but does not lend money or plan or construct
- Fee Simple - An unconditional, unlimited estate
of inheritance that represents the greatest estate and most extensive
interest in land that can be enjoyed. It is of perpetual duration. When
the real estate is in a condominium project, the unit owner is the
exclusive owner only of the air space within his or her portion of the
building (the unit) and is an owner in common with respect to the land and
other common portions of the property.
- FHA Coinsured Home Loan - A loan (under FHA
Section 244) for which the Federal Housing Administration (FHA) and the
originating lender share the risk of loss in the event of the borrower's
- FHA Home Loan - A mortgage home loan that is
insured by the Federal Housing Administration (FHA). Also known as a
- Filing Status - Please enter here whether you
file your income taxes as single, married, separated or head-of
- Firm Commitment - A lender's agreement to make
a loan to a specific borrower on a specific property.
- First Mortgage (Home Loan) - A home loan that
is the primary lien against a property.
- Fixed Installment - The monthly payment due on
a mortgage loan. The fixed installment includes payment of both principal
- Fixed Period ARM - Provides a fixed rate for 3,
5, 7 or 10 years then adjusts annually based on a financial index for the
remaining loan term.
- Fixed Rate Mortgage - A mortgage with an
interest rate that stays the same (fixed) over the life of the mortgage.
Monthly payments for a fixed rate mortgage are very stable and will not
- Fixture - Personal property that becomes real
property when attached in a permanent manner to real estate (such as a
lighting fixture or an in-ground spa).
- Flood Check - A survey conducted to determine
whether a property is in a flood zone.
- 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's interest in mortgaged property is taken because of a default on
the loan. This usually involves a forced sale of the property at public
auction with the proceeds of the sale being applied to the mortgage
- Forfeiture - The loss of money, property,
rights, or privileges due to a breach of legal obligation.
- 401(k)/403(b) - An employer-sponsored
investment plan that allows individuals to set aside tax-deferred income
for retirement or emergency purposes. 401(k) plans are provided by
employers that are private corporations. 403(b) plans are provided by
employers that are not-for-profit organizations.
- 401(k)/403(b) Loan - Some administrators of
401(k)/403(b) plans allow for loans against the monies accumulated in
these plans - monies must be repaid to avoid serious penalty
- Freddie Mac (Federal Home Loan Mortgage
Corporation) - 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
- Good Faith Estimate - A document provided when
you apply for a loan. It provides estimates of all costs associated with
obtaining and closing a mortgage loan.
- Government Loan - A loan that is insured by the
Federal Housing Administration (FHA) or guaranteed by the Department of
Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with
- Government National Mortgage Association (GNMA or
Ginnie Mae) - A government-owned corporation within the U.S.
Department of Housing and Urban Development (HUD). Created by Congress on
September 1, 1968, GNMA assumed responsibility for the special assistance
loan programs formerly administered by Fannie Mae.
- Grantee - The person to whom an interest in
real property is conveyed (e.g. the buyer).
- Grantor - The person who conveys an interest in
real property (e.g. the seller).
- Gross Monthly Income - Normal annual income
including overtime that is regular or guaranteed. The before taxes income
may be from more than one source. Salary is generally the principal
source, but other income may qualify if it is significant and
- Ground Rent - The amount of money that is paid
for the use of land when title to a property is held as a leasehold estate
rather than as a fee simple estate.
- Group Home A single-family residential
structure designed or adapted for occupancy by unrelated developmentally
disabled persons. The structure provides long-term housing and support
services that are residential in nature.
- Homeowner's Insurance (Hazard Insurance) -
Insurance coverage that compensates for physical damage to a property from
fire, wind, vandalism, or other hazards. The policy typically combines
personal liability insurance and property hazard insurance coverage for a
dwelling and its contents. See also homeowner's insurance.
- Home Equity Line Of Credit (HELOC) - A mortgage
loan, which is usually in a subordinate position, that allows the borrower
to obtain multiple advances of the loan proceeds at his or her own
discretion, up to an amount that represents a specified percentage of the
borrower's equity in a property.
- Home Inspection - A thorough inspection that
evaluates the structural and mechanical condition of a property. A
satisfactory home inspection is often included as a contingency by the
purchaser. Contrast with appraisal.
- Homeowners' Association - A nonprofit
association that manages the common areas of a planned unit development
(PUD) or condominium project. In a condominium project, it has no
ownership interest in the common elements. In a PUD project, it holds
title to the common elements. See also master association.
- Homeowner's Insurance - Insurance coverage that
compensates for physical damage to a property from fire, wind, vandalism,
or other hazards. The policy typically combines personal liability
insurance and property hazard insurance coverage for a dwelling and its
- Homeowner's Warranty (HOW) - A type of
insurance that covers repairs to specified parts of a house for a specific
period of time. It may be provided by the builder or property seller as a
condition of the sale but homeowners can also purchase it.
- Housing Expense Ratio - The percentage of gross
monthly income that goes toward paying housing expenses.
- HUD Median Income - Median family income for a
particular county or metropolitan statistical area (MSA), as estimated by
the Department of Housing and Urban Development (HUD).
- HUD-1 Settlement Statement - A document that
provides an itemized listing of the funds that are payable at closing.
Items that appear on the statement include real estate commissions, loan
fees, points, and initial escrow amounts. Each item on the statement is
represented by a separate number within a standardized numbering system.
The totals at the bottom of the HUD-1 statement define the seller's net
proceeds and the buyer's net payment at closing. The blank form for the
statement is published by the Department of Housing and Urban Development
(HUD). The HUD-1 statement is also known as the "closing statement" or
- Income Property - Real estate developed or
improved to produce income.
- Index - A number used to compute the interest
rate for an adjustable-rate mortgage (ARM). The index is generally a
published number or percentage, such as the average interest rate or yield
on Treasury bills. A margin is added to the index to determine the
interest rate that will be charged on the ARM. Some lenders provide caps
that limit how much the interest rate or loan payments may increase or
- In-File Credit Report - An objective account,
normally computer-generated, of credit and other financial information
obtained from a credit reporting agencies.
- Inflation - An increase in the amount of money
or credit available in relation to the amount of goods or services
available, which causes an increase in the general price level of goods
and services. Over time, inflation reduces the purchasing power of a
dollar, making it worth less.
- Initial Draw Amount - The amount of the home
equity line of credit that the borrower is requesting at closing (up to,
but never exceeding, the credit line amount).
- Initial Interest Rate - The starting interest
rate for an adjustable-rate mortgage (ARM) loan or variable-rate home
equity line of credit. At the end of the effective period for the initial
rate, the interest rate adjusts periodically during the life of the loan
based on changes in a specified financial index. Sometimes known as "start
rate," "intro rate" or "teaser rate."
- Introductory Rate - The starting rate for a
home equity loan or line of credit, usually a discounted rate, for a short
period of time. See initial interest rate.
- Installment Loan - Borrowed money that is
repaid in equal payments, known as installments. A furniture loan is often
paid for as an installment loan.
- Insurable Title - A property title that a title
insurance company agrees to insure against defects and
- Insurance - A contract that provides
compensation for specific losses in exchange for a periodic payment. An
individual contract is known as an insurance policy, and the periodic
payment is known as an insurance premium.
- Insurance Binder - A document that states that
insurance is temporarily in effect. Because the coverage will expire by a
specified date, a permanent policy must be obtained before the expiration
- Insured Mortgage - A mortgage that is protected
by the Federal Housing Administration (FHA) or by private mortgage
insurance (PMI). If the borrower defaults on the loan, the insurer must
pay the lender the lesser of the loss incurred or the insured
- Interest - The amount the lender charges to
lend you money.
- Interest Accrual Rate - The percentage rate at
which interest accrues on the mortgage. In most cases, it is also the rate
used to calculate the monthly payments.
- Interest Payment - The portion of a monthly
payment that goes to interest based on the amortization
- Interest Rate - The percentage rate of return
charged for use of a sum of money. This percentage rate is specified in
the mortgage note. See note rate.
- Interest Rate Buydown Plan - A temporary
buydown gives a borrower a reduced monthly payment during the first few
years of a home loan and is typically paid for in an initial lump sum made
by the seller, lender, or borrower. A permanent buydown is paid the same
way but reduces the interest rate over the entire life of a home
- Investment Property - A property that is not
occupied by the owner and is generally rented to a tenant to produce
- Joint Tenancy - A form of co-ownership that
gives each tenant equal undivided interest and rights in the property,
including the right of survivorship. Contrast with tenancy in common,
tenancy by the entirety.
- Judgment - A decree by a court of law that one
person, a debtor, is indebted to another, a creditor, in a specified
amount. The court may place a lien against the debtor's real property as
collateral for payment of the judgment to the creditor.
- Judgment Lien - A lien on the property of a
debtor resulting from a judgment.
- Judicial Foreclosure - A type of foreclosure
proceeding used in some states that is handled as a civil lawsuit where
the court confirms the sales price for the property and the distribution
of the sale proceeds.
- Jumbo Loan - Any loan amount in excess of
$252,700. Also called a nonconforming loan.
- Late Charge - The penalty a borrower must pay
when a payment is made a stated number of days (usually 10-15) after the
- Lease - A written agreement between the
property owner and a tenant that stipulates the conditions under which the
tenant may use the real estate for a specified period of time and the
amount of rent to be paid.
- Leasehold Estate - A tenant's interest in or
right to hold possession of a property.
- Legal Description - A property description,
recognized by law, using a government rectangular survey, metes and
bounds, or a plot map to sufficiently locate and identify a
- Lender's Fees - Fees paid to the lender to
cover costs associated with processing, underwriting and closing of the
- Lending Guidelines - Every loan program has
different guidelines. Guidelines are used to meet Federal, State and Local
laws and enforce minimum requirements by the lender. Guidelines ensure
that prospective borrowers won't purchase a home that they won't be able
- Liabilities - A person's debts or financial
obligations. Liabilities include long-term and short-term debt, as well as
potential losses from legal claims.
- Liability Insurance - Insurance coverage that
offers protection against claims alleging that a property owner's
negligence or inappropriate action resulted in bodily injury or property
damage to another party. See also homeowners insurance.
- Lien - A legal claim against a property that
must be paid off when the property is sold. A lien is created when you
borrow money to purchase or refinance a home loan or and with obtain a
home equity loan.
- Lifetime Rate Cap - For an adjustable-rate
mortgage (ARM), a limit on the amount that the interest rate can increase
or decrease over the life of the loan. See cap.
- Line/Loan Amount - The entire HELOC or Fixed
Rate Second mortgage loan amount.
- Line Of Credit - An agreement by a lender to
extend credit up to a certain amount for a certain time without the need
for the borrower to file another application. See home equity line of
- Liquid Asset - A cash asset or an asset that is
easily converted into cash.
- Loan Amount - The amount of money you want to
borrow to purchase or refinance a home. Also called the principal and is
generally repaid over time with interest.
- Loan Commitment - A lender's agreement to
advance money on specified terms after specified conditions are met. See
- Loan Origination - The process by which a
mortgage lender makes a home loan and records a mortgage against the
borrower's real property as security for repayment of the loan.
- Loan Program - Typically a lender will have
several types of loan programs available. They are described in accordance
with the major features of the loan program. For example, a loan described
as a "Fixed 30 Year" would mean that the interest rate and payment remain
fixed over the thirty year life of the loan. A program described as
"Fixed/ARM 5/1" means that the interest rate and payment remain fixed for
the first five years, and then it is subject to adjustments every year
- Loan-To-Value Ratio - The ratio of the total
amount borrowed on a mortgage against a property compared to the appraised
value of the property. For example, if you have an $80,000 1st mortgage on
a home with an appraised value of $100,000, the LTV is 80% ($80,000 /
$100,000 = 80%).
- Lock-In - A written agreement in which the
lender guarantees a specified loan program interest rate and points if a
mortgage goes to closing within a set period of time.
- Lock-In Period - The time period during which
the lender has guaranteed an interest rate to a borrower. See
- Margin - For an adjustable-rate mortgage (ARM)
or home equity line of credit, the amount that is added to the index to
establish the interest rate on each adjustment date, subject to any
limitations on the interest rate change. The margin is static and will not
change during the life of the loan.
- Master Association - A homeowners' association
in a large condominium or planned unit development (PUD) project that is
made up of representatives from associations covering specific areas
within the project. In effect, it is a "second-level" association that
handles matters affecting the entire development, while the "first-level"
associations handle matters affecting their particular portions of the
- Maturity - The date on which the principal
balance of a loan, bond, or other financial instrument becomes due and
payable. At the maturity of a 30-year loan the principal balance will be
paid in full.
- Maximum Financing - The maximum amount a lender
will lend on a specific loan program.
- Maximum Rate - The maximum interest rate that
can accrue on a variable rate loan
- Merged Credit Report - A credit report that
contains information from more than one credit reporting agency. When the
report is created, the information is compared for inconsistencies and
duplicate entries. Any duplicates are combined to provide a summary of a
- Minimum Payment - The minimum amount that must
be paid monthly on an account. On the HELOC product, the minimum payment
is interest only during the draw period. On the Fixed Rate Second
products, the minimum payment is principal and interest.
- Modification - The act of changing any of the
terms of the mortgage.
- Money Market Account - A savings account that
provides bank depositors with many of the advantages of a money market
fund. Certain regulatory restrictions apply to the withdrawal of funds
from a money market account.
- Money Market Fund - A mutual fund that allows
individuals to participate in managed investments in short-term debt
securities, such as certificates of deposit and Treasury bills.
- Monthly Debt - A borrower's monthly expenses
including credit cards, installment loans, student loan payments, alimony
and child support and housing payment expense.
- Monthly Mortgage Insurance (MI) Payment -
Portion of monthly payment that covers the cost of Private Mortgage
- Monthly Principal & Interest (P&I) Payment
- Portion of monthly payment that covers the principal and interest
due on the loan.
- Monthly Taxes & Insurance (T&I) Payment -
Portion of monthly payment that funds the escrow or impound account
for taxes and insurance.
- Monthly Payment (P&I) - This is the monthly
mortgage payment on a home loan, this includes principal and interest, but
excludes any amounts that are applied to taxes and insurance.
- Mortgage - A legal document that pledges a
property to the lender as security for payment of a debt.
- Mortgage Banker - A company that originates,
sells and services mortgages exclusively for resale in the secondary
- Mortgage Broker - An individual or company that
brings borrowers and lenders together for the purpose of loan origination.
Mortgage brokers typically require a fee or a commission for their
- Mortgagee - The lender in a mortgage
- Mortgage Insurance - A contract that insures
the lender against loss caused by a borrower's default on a government
mortgage or conventional mortgage. Mortgage insurance can be issued by a
private company or by a government agency such as the Federal Housing
Administration (FHA). Depending on the type of mortgage insurance, the
insurance may cover a percentage of or virtually all of the mortgage loan.
See private mortgage insurance (PMI).
- Mortgage Insurance Premium (MIP) - The amount
paid by a borrower for mortgage insurance, either to a government agency
such as the Federal Housing Administration (FHA) or to a private mortgage
insurance (MI) company.
- Mortgage Life Insurance - A type of term life
insurance sometimes bought by borrowers. The amount of coverage decreases
as the loan's principal balance declines. In the event that the borrower
dies while the policy is in force, the debt is automatically satisfied by
insurance proceeds. See credit life insurance.
- Mortgagor - The borrower in a mortgage
- Multi-Dwelling Units - Properties that provide
separate housing units for more than one family, although they secure only
a single mortgage. Typically a 2-4 unit property.
- Negative Amortization - An increase in the
outstanding balance of a mortgage that occurs when the monthly payment is
not large enough to cover the interest due. The amount of the shortfall is
added to the remaining balance to create "negative"
- Net Cash Flow - The income that remains for an
investment property after the monthly operating income is reduced by the
monthly housing expense, which includes principal, interest, taxes, and
insurance (PITI) for the mortgage, homeowners' association dues, leasehold
payments, and subordinate financing payments.
- No Closing Cost Loan - A loan in which the fees
the borrower(s) are not required to pay cash out-of-pocket at closing for
the normal closing costs. The lender typically includes the closing costs
in the principal balance or charges a higher interest rate than for a loan
with closing costs to cover the advance of closing costs.
- Net Worth - The value of all of a person's
assets, including cash, minus all liabilities.
- Non-Conforming Loan - See jumbo
- Non-Liquid Asset - An asset that cannot easily
be converted into cash.
- "No Out Of Pocket Cost" Loan - A loan in which
the fees the borrower(s) are not required to pay cash out-of-pocket at
closing for the normal closing costs. The lender typically includes the
closing costs in the principal balance or charges a higher interest rate
than for a loan with closing costs to cover the advance of closing
- Notary - An official authorized by law to
attest and certify certain documents by his or her hand and official
- Note - A legal document that obligates a
borrower to repay a mortgage loan at a stated interest rate during a
specified period of time.
- Note Rate - The interest rate stated on a
- Notice Of Default - A formal written notice to
a borrower that a default has occurred and that legal action may be
- Original Principal Balance - The total amount
of principal owed on a mortgage before any payments are made.
- Origination Fee - A fee paid to a lender for
processing a loan application, making a home loan, and recording a
mortgage against the borrower's real property as security for repayment of
the loan. The origination fee is stated in the form of points. One point
is 1% of the mortgage amount (e.g., 1,000 on a $100,000 loan).
- Owner Financing - A property purchase
transaction in which the property seller provides all or part of the
financing and takes back a security instrument.
- Partial Payment - A payment that is not
sufficient to cover the scheduled monthly principal and interest payment
on a mortgage loan.
- Payment (P&I) - Your monthly mortgage
payment, including principal and interest, but excluding Tax and insurance
- Payment Change Date - The date when a new
monthly payment amount takes effect on an adjustable rate mortgage (ARM).
Generally, the payment change date occurs in the month immediately after
the adjustment date and the borrower is notified 30 days prior as to the
- Payoff - To pay the outstanding balance of a
loan in full.
- Periodic Payment Cap - A provision of an
adjustable-rate mortgage (ARM) that limits how much the interest rate or
loan payments may increase or decrease. In upward rate markets, it
protects the borrower from large increases in the interest rate or monthly
payment at each adjustment period. See cap.
- Periodic Rate Cap - A provision of an
adjustable-rate mortgage (ARM) that limits how much the interest rate or
loan payments may increase or decrease. In upward rate markets, it
protects the borrower from large increases in the interest rate or monthly
payment at each adjustment period. See cap.
- Personal Property - Any property that is not
real property or is not permanently fixed to land. Cash, furniture, and
cars are all examples of personal property.
- Piggyback - A combination of two loans.
Example: A loan is made for 90% of the home price. 80% of the purchase
price is supplied by a 1st mortgage and 10% by a 2nd mortgage. The 2nd
mortgage is piggybacked on the 1st.
- PITI - An abbreviation for the parts of a
typical monthly mortgage payment. PITI stands for
principal-Interest-Taxes-Insurance. See principal, interest, taxes, and
- PITI Reserves - A cash amount that a borrower
must have on hand after making a down payment and paying all closing costs
for the purchase of a home. The principal, interest, taxes, and insurance
(PITI) reserves must equal the amount that the borrower would have to pay
for PITI for a predefined number of months.
- Planned Unit Development - See PUD.
- PMI - Stands for Private Mortgage Insurance.
PMI is an insurance policy the borrower buys to protect the lender from
non-payment of the loan. PMI policies are usually required if you make a
down payment that is below 20% of the sales price of the home.
- Points (Loan Discount Points) - Points are
prepaid interest on your mortgage. A one-time fee charged by the lender at
the time of closing for originating a loan. Each point is 1% of the loan
amount - that is, 2 points on a $100,000 mortgage would be
- Power Of Attorney - A legal document
authorizing one person to act on another's behalf. A power of attorney can
grant complete authority or can be limited to certain acts and/or certain
periods of time.
- Pre-Approval - A lender's conditional agreement
to lend a specific amount on specific terms to a homebuyer. (subject to
satisfactory appraisal and no change in financial condition). You can shop
with assurance, because you'll know up-front how large a loan you could
- Preforeclosure Sale -A procedure in which the
investor allows a mortgagor to avoid foreclosure by selling the property,
typically for less than the amount that is owed to the lender.
- Pre-Paid Items (Prepaids) - Items required by
lender to be paid at closing prior to the period they cover such as
prorated property taxes, homeowners insurance and pre-paid
- Pre-Paid Interest - Mortgage interest that is
paid in advance of when it is due.
- Prepayment - Any amount paid to reduce the
principal balance of a loan before the due date. Payment in full on a
mortgage that may result from a sale of the property, the owner's decision
to pay off the loan in full, or a foreclosure. In each case, prepayment
means payment occurs before the loan has been fully amortized.
- Prepayment Penalty - A fee that may be charged
to a borrower who pays off a loan before it is due. Generally, a
prepayment penalty is added to a loan in exchange for a discounted
- Pre-Qualification - A preliminary analysis of a
borrower's ability to afford the purchase of a home. An affordability
analysis takes into consideration factors such as income, liabilities, and
available funds, along with the type of home loan, the likely taxes and
insurance for the home, and the estimated closing costs.
- Primary Residence - The place someone lives
most of the time.
- Prime Rate - The interest rate that banks
charge on short-term loans to its most creditworthy customers. Changes in
the prime rate influence changes in other rates, including mortgage
- Principal - The amount borrowed or remaining
unpaid. The part of the monthly payment that reduces the remaining balance
of a mortgage.
- Principal Balance - The outstanding balance on
a mortgage. The principal balance does not include interest or any other
charges. See remaining balance.
- Principal, Interest, Taxes, and Insurance (PITI) -
Four potential components of a monthly mortgage payment. Principal
refers to the part of the monthly payment that reduces the remaining
balance of the mortgage. Interest is the fee charged for borrowing money.
Taxes and insurance refer to the amounts that may be paid into an escrow
account each month for property taxes and mortgage and hazard
- Principal Payment - Portion of your monthly
payment that reduces the remaining balance of a home loan.
- Private Mortgage Insurance (PMI) - Mortgage
insurance that is provided by a private mortgage insurance company to
protect lenders against loss if a borrower defaults. Most lenders
generally require PMI for a loan with a loan-to-value (LTV) percentage in
excess of 80 %.
- Processing - The preparation and documentation
of a mortgage loan application for underwriting.
- Promissory Note - A written promise to repay a
specified amount over a specified period of time.
- Property Value - LTV or Loan to Value Ratio
refers to the relationship between the unpaid principal balance of the
mortgage and the property's appraised value (or sales price if it is
- Public Auction - A meeting in an announced
public location to sell property to repay a mortgage that is in
- PUD (Planned Unit Development) - A project or
subdivision that includes common property that is owned and maintained by
a homeowners' association for the benefit and use of the individual PUD
- Purchase Agreement - A written contract signed
by the buyer and seller stating the terms and conditions under which a
property will be sold.
- Purchase Money Transaction - A loan used in
part as payment for a purchase. A loan that is used to buy a home is
called a purchase money mortgage.
- Purchase Price - The total amount paid for a
- Qualifying Ratios - Calculations that are used
in determining whether a borrower can qualify for a mortgage. They consist
of two separate calculations: a housing expense as a percent of income
ratio and total debt obligations as a percent of income ratio.
- Quit Claim Deed - A deed that transfers,
without warranty of ownership, whatever interest or title a grantor may
have at the time the conveyance is made.
- Rate - This is the annual interest rate applied
to the outstanding balance of the loans.
- Rate Reduction Option - A fixed-rate mortgage
that includes a provision that gives the borrower an option to reduce the
interest rate (without refinancing) at a later date. It is similar to a
prearranged refinancing agreement, except that it does not require
- Rate Lock - A commitment issued by a lender to
a borrower guaranteeing a specified interest rate for a specified period
of time. See lock-in.
- Real Estate Agent - A person who is normally
licensed by the state and who, for a commission or a fee, assists in
negotiating a real estate transaction.
- Real Estate Settlement Procedures Act (RESPA) -
A consumer protection law that, among other things, requires advance
disclosure of settlement costs to home buyers and sellers, prohibits
certain types of referral and other fees, sets rules for escrow accounts,
and requires notice to borrowers when servicing of a home loan is
- Real Property - Land and appurtenances,
including anything of a permanent nature such as structures, trees,
minerals, and the interest, benefits, and inherent rights
- 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.
- Recording - Filing a document in the public
records, thereby giving constructive notice to the world of the existence
of the document and its contents.
- Reduced Documentation - A method used to
determine income when qualifying a borrower(s) for a loan. Borrower(s)
provide their income, however no verification documentation is typically
- Rescission - The act of cancellation or
annulment of a transaction or contract by the operation of a law.
Borrowers usually have the option to cancel certain credit transactions,
including a refinance or home equity transaction, within three business
days after consummation (when the consumer becomes contractually obligated
by, for example, signing the loan documents).
- Recorder - The public official who keeps
records of transactions that affect real property in the area. Sometimes
known as a "Registrar of Deeds" or "County Clerk."
- Recording - The noting in a book of public
record of the terms of a legal document affecting title to real property,
such as a deed, a mortgage note, a satisfaction of mortgage, or an
extension of mortgage.
- Refinance Transaction - The process of paying
off one loan with the proceeds from a new loan, typically using the same
property as security for the new loan.
- Rehabilitation Mortgage - A mortgage created to
cover the costs of repairing, improving, and sometimes acquiring an
- Remaining Balance - The amount of principal
that has not yet been repaid. See principal balance.
- Remaining Term - The original amortization term
minus the number of payments that have been applied.
- Rent With Option To Buy - See lease-purchase
- Repayment Plan - An arrangement made to repay
delinquent installments or advances. Lenders' formal repayment plans are
often called "relief provisions."
- Revolving Liability - A credit arrangement,
such as a credit card or HELOC, that allows a customer to borrow against a
predetermined line of credit when purchasing goods and services. The
borrower makes payments on the amount that is actually borrowed plus any
- Request For Notice of Default - A recorded
document that obligates the holder of the first mortgage lien to notify
subordinate lien holders in the event of default by the
- Right Of First Refusal - A provision in an
agreement that requires the owner of a property to give another party the
first opportunity to purchase or lease the property before he or she
offers it for sale or lease to others.
- Right Of Ingress or Egress - The right to enter
or leave designated premises.
- Right Of Survivorship - In joint tenancy, the
right of survivors to acquire the interest of a deceased joint
- Rural Housing Service (RHS) - An agency within
the Department of Agriculture. This agency provides financing to farmers
and other qualified borrowers buying property in rural areas who are
unable to obtain loans elsewhere. Funds are borrowed from the U.S.
- Second Mortgage - A mortgage that has a lien
position subordinate to the first mortgage.
- Secondary Mortgage Market - An informal market
where lenders and investors buy and sell existing mortgages.
Government-sponsored entities and private investors buy mortgages from
lenders who use the proceeds to make additional loans.
- Secured Loan - A loan that is backed by
collateral. If the borrower defaults, the lender can sell the collateral
to satisfy the debt.
- Security - The property that will be pledged as
collateral for a loan. If the borrower defaults, the lender can sell the
collateral to satisfy the debt.
- Security Interest - An interest a lender takes
in the borrower's property to assure repayment of a debt. If the borrower
defaults, the lender can sell the collateral to satisfy the
- Seller Take-Back - An agreement in which the
owner of a property provides financing, often in combination with an
assumable mortgage. See owner financing.
- Servicer - An organization that collects
principal and interest payments from borrowers and manages borrowers' tax
and insurance escrow accounts. A mortgage banker is often paid a fee to
service mortgages that have been purchased by an investor in the secondary
- Servicing - The collection of principal and
interest payments from borrowers and management of borrowers' tax and
insurance escrow accounts.
- Settlement - See closing.
- Settlement Sheet - See HUD-1 settlement
- Single Family Residence - A residential
structure designed to include one dwelling.
- Special Deposit Account - An account that is
established for rehabilitation mortgages to hold the funds needed for the
rehabilitation work so they can be disbursed from time to time as
particular portions of the work are completed.
- Stand Alone - A Home Equity loan originated
without obtaining a Countrywide first mortgage at the same
- Start Date - The date you want to use as the
start date for the amortization, usually the date you closed on your loan
or today's date.
- Start Month - The date you will begin adding an
extra dollar amount to your regular monthly payments. Enter the payment
number from 1 to 360 (e.g., if you will start paying extra principal at
the start of year 5 of a 30 year loan, enter "49".
- Start Rate - See initial interest
- Subdivision - A housing development that is
created by dividing a tract of land into individual lots for sale or
- Sub-Escrow - Are fees charged by the escrow
company for allowing the borrower to be able to sign all the loan
documents in the Escrow office instead of having to go to the lenders
- Subordinate Financing - Any mortgage or other
lien that has a priority that is lower than that of the first mortgage.
The subordinate loan has a claim to payment in a foreclosure only after
the first mortgage is paid.
- Subprime - Subprime Lending is also called
B&C lending. It refers to a category of loan programs that offer more
lenient underwriting provisions and expanded credit guidelines. These
provisions allow more flexibility in approving loans for borrowers who
have less-than-perfect credit. Subprime loans are available at various
interest rates and terms. They also offer capabilities for debt
consolidation allowing borrowers to get a mortgage with enough extra cash
to consolidate loans.
- Subsidized Second Mortgage - An alternative
financing option known as the Community Seconds? mortgage for low- and
moderate-income households. An investor purchases a first mortgage that
has a subsidized second mortgage behind it. The second mortgage may be
issued by a state, county, or local housing agency, foundation, or
nonprofit corporation. Payment on the second mortgage is often deferred
and carries a very low interest rate (or no interest rate). Part or all of
the second mortgage debt may be forgiven depending on how long the buyer
remains in the home.
- Survey - A drawing or map showing the precise
legal boundaries of a property, the location of improvements, easements,
rights of way, encroachments, and other physical features.
- Sweat Equity - Contribution to the construction
or rehabilitation of a property in the form of labor or services performed
personally by the owner.
- Tax Bracket - Please select the tax bracket you
fall under. If you are unsure what tax bracket you are in, you may want to
speak with an accountant find out.
- Tax Savings - This is the amount of money you
save in income taxes. You save this money because in most cases the
interest you pay on your home loan is tax deductible!
- Tax Service - A fee collected to set up a
third-party to monitor the borrower's property tax payments to ensure that
the payments are made on time, and to prevent tax liens from
- Tenancy By The Entirety - A type of joint
tenancy of property that provides right of survivorship and is available
only to a husband and wife. One spouse dies the property goes to the other
spouse. Contrast with tenancy in common and joint tenancy.
- Tenancy In Common - A type of joint tenancy in
a property without right of survivorship. Contrast with tenancy by the
entirety and with joint tenancy.
- Term - The term of a home loan is the number of
years the home loan is amortized for. Home loans are generally amortized
over 15, 20 or 30 years.
- Termite Report - A report that results from an
inspection by a professional to determine if the property has
- Third Party Fees - Fees collected by lender for
services provided by other companies, such as an appraiser.
- Third Party Origination - A process by which a
lender uses another party to completely or partially originate, process,
underwrite, close, fund, or package the home loan. See mortgage
- Title - A legal document evidencing a person's
right to or ownership of a property.
- Title Company - A company that specializes in
examining and insuring titles to real estate.
- Title Insurance - Insurance that protects the
lender (lender's policy) or the buyer (owner's policy) against loss
arising from disputes over ownership of a property.
- Title Insurance Endorsements - This is an
endorsement of insurance against losses that may result from claims of
previously unknown ownership in insured property.
- Title Search - A check of the title records to
ensure that the seller is the legal owner of the property and that there
are no liens or other claims outstanding.
- Total Expense Ratio - Total obligations as a
percentage of gross monthly income. The total expense ratio includes
monthly housing expenses plus other monthly debts. Used to help qualify a
potential borrower for a home loan.
- Total Monthly Payment - See Monthly PITI
- Transaction Fee - A fee charged each time the
borrower draws on the credit line.
- Transfer of Ownership - Any means by which the
ownership of a property changes hands. Lenders consider all of the
following situations to be a transfer of ownership: the purchase of a
property "subject to" the mortgage, the assumption of the mortgage debt by
the property purchaser, and any exchange of possession of the property
under a land sales contract or any other land trust device.
- Transfer Tax - State or local tax payable when
title to a property passes from one owner to another.
- Treasury Index - An index that is used to
determine interest rate changes for certain adjustable-rate mortgage (ARM)
plans. It is based on the results of auctions that the U.S. Treasury holds
for its Treasury bills and securities or is derived from the U.S.
Treasury's daily yield curve, which is based on the closing market bid
yields on actively traded Treasury securities in the over-the-counter
market. See adjustable-rate mortgage (ARM).
- Truth-in-Lending - A federal law that requires
lenders to fully disclose, in writing, the terms and conditions of credit,
such as a mortgage, including the annual percentage rate (APR) and other
- Two To Four-Family Property - A property that
consists of a structure that provides living space (dwelling units) for
two to four families, although ownership of the structure is evidenced by
a single deed. See multi-unit housing.
- Trustee - A fiduciary who holds or controls
property for the benefit of another.
- Underwriting - The analysis of risk, the
determination of the appropriate loan amount, and the setting of loan
terms and conditions, based on the borrower's creditworthiness and the
value of the real property that will secure the loan.
- Unsecured Loan - A loan that is not backed by
- VA Mortgage - A mortgage that is guaranteed by
the Department of Veterans Affairs (VA). Also known as a government
- Variable Rate - An interest rate that changes
periodically in relation to an index. Payments may increase or decrease
per the terms of the loan agreement or note.
- Vested - Having the right to use a portion of a
fund such as an individual retirement fund. For example, individuals who
are 100 percent vested can withdraw all of the funds that are set aside
for them in a retirement fund. However, taxes may be due on any funds that
are actually withdrawn.
- Veterans Affairs, Department of (VA) - An
agency of the federal government that guarantees residential mortgages
made to eligible veterans of the military services. The guarantee protects
the lender against loss and thus encourages lenders to make mortgages to
- Warehouse - A closing-cost fee representing the
lender's cost of holding a borrower's loan temporarily prior to being sold
on the secondary mortgage market.
- Year Acquired - The date you acquired your
existing mortgage, used to determine your remaining balance.
- Year-End Statement - A report sent to the
borrower each year. The report shows how much was paid in taxes and
interest during the year, as well as the remaining mortgage loan balance
at the end of the