Glossary of
Mortgage Terms

A

A-Credit

A consumer with the best credit rating, deserving of the lowest prices that lenders offer. Most lenders require a FICO score above 720. There is seldom any payoff for being above the A-credit threshold, but you pay a penalty for being below it.

Acceleration clause

A contractual provision that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note.

Accrued interest

Interest that is earned but not paid, adding to the amount owed. Same as Negative amortization.

Adjustable rate mortgage (ARM)

A mortgage on which the interest rate, after an initial period, can be changed by the lender. While ARMs in many countries abroad allow rate changes at the lender's discretion ("discretionary ARMs"), in the US most ARMs base rate changes on a pre-selected interest rate index over which the lender has no control. These are "indexed ARMs". There is no discretion associated with rate changes on indexed ARMs.

Adjustment Interval

On an ARM, the time between changes in the interest rate or monthly payment. The rate adjustment interval and the payment adjustment interval are the same on a fully amortizing ARM, but may not be on a negative amortization ARM.

Affordability

A consumer's capacity to afford a house. Affordability is usually expressed in terms of the maximum price the consumer could pay for a house, and be approved for the mortgage required to pay that amount.

Agreement of Sale

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

Alternative documentation

Expedited and simpler documentation requirements designed to speed up the loan approval process. Instead of verifying employment with the applicant's employer and bank deposits with the applicant's bank, the lender will accept paycheck stubs, W-2s, and the borrower's original bank statements. Alternative documentation remains "full documentation", as opposed to the other documentation options.

Amortization

The repayment of principal from scheduled mortgage payments that exceed the interest due. The scheduled payment less the interest equals amortization. The loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment. If the payment is less than the interest due, the balance rises, which is negative amortization.

Amortization Schedule

A table showing the mortgage payment, broken down by interest and amortization, the loan balance, tax and insurance payments if made by the lender, and the balance of the tax/insurance escrow account.

Amount Financed

On the Truth in Lending form, the loan amount less "prepaid finance charges", which are lender fees paid at closing. For example, if the loan is for $100,000 and the borrower pays the lender $4,000 in fees, the amount financed is $96,000. A useless number.

Application

A request for a loan that includes the information about the potential borrower, the property and the requested loan that the solicited lender needs to make a decision. In a narrower sense, the application refers to a standardized application form called the "1003" which the borrower is obliged to fill out.

Application Fee

A fee that some lenders charge to accept an application. It may or may not cover other costs such as a property appraisal or credit report, and it may or may not be refundable if the lender declines the loan.

Appraisal

A written estimate of a property's current market value prepared by an appraiser.

Appraiser

A professional with knowledge of real estate markets and skilled in the practice of appraisal. When a property is appraised in connection with a loan, the appraiser is selected by the lender, but the appraisal fee is usually paid by the borrower.

Appraisal Fee

A fee charged by an appraiser for the appraisal of a particular property.

APR

The Annual Percentage Rate, which must be reported by lenders under Truth in Lending regulations. It is a comprehensive measure of credit cost to the borrower that takes account of the interest rate, points, and flat dollar charges. It is also adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than dollars paid ten years down the road. However, the APR is calculated on the assumption that the loan runs to term, and is therefore potentially deceptive for borrowers with short time horizons.

Approval

Acceptance of the borrower's loan application. Approval means that the borrower meets the lender's qualification requirements and also its underwriting requirements. In some cases, especially where approval is provided quickly as with automated underwriting systems, the approval may be conditional on further verification of information provided by the borrower.

Assumption

A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. Unless the lender also agrees, however, the seller remains liable for the mortgage.

Assumable Mortgage

A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller. Assuming a loan will save the buyer money if the rate on the existing loan is below the current market rate, and closing costs are avoided as well. A loan with a "due-on-sale" clause stipulating that the mortgage must be repaid upon sale of the property, is not assumable.

Auction site

See Lead-Generation site.

Authorized user

Someone authorized by the original credit card holder to use the holder’s card. The card-holder is responsible for the charges of the authorized user, but the authorized user is not responsible for paying any charges, including his own. But sometimes authorized users are dunned for the unpaid bills of the card holder.

Automated Underwriting

A computer-driven process for informing the loan applicant very quickly, sometimes within a few minutes, whether the applicant will be approved, or whether the application will be forwarded to an underwriter. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower's credit history and the subject property.

Automated Underwriting System

A particular computerized system for doing automated underwriting. Mortgage insurers and some large lenders have developed such systems, but the most widely used are Fannie Mae’s “Desktop Underwriter" and Freddie Mac’s “Loan Prospector".

Abstract (Of Title)

A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause

Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Acceptance

An offeree's consent to enter into a contract and be bound by the terms of the offer.

Additional principal payment

A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjustable Mortgage Loan

Any mortgage that does not have a fixed interest rate and a fixed payment for the term of the loan, or does not amortize to zero at the end of the set term, when required payments are made on time.

Adjustable Rate Mortgage

A mortgage in which the interest rate is adjusted periodically according to the movement in a pre-selected index.

Adjusted basis

The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken

Adjustment date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Interval

For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

Adjustment period

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Administrator

A person appointed by a probate court to administer the estate of a person who died intestate.

Agreement of Sale

Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

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 of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization

A payment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal.

Amortization schedule

A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Amortization term

The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months.

Amortize

Reduce a debt by regular payments of both principal and interest.

Amortization Schedule

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Annual Percentage Rate (APR)

The total yearly cost of a mortgage stated as a percentage of the loan amount: includes the base interest rate, primary mortgage insurance, and loan origination fee (points)

Annuity

An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

Application

A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.

Application Fee

The fee charged by the lender to the borrower for applying for a loan.

Appraised value

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appraiser

A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appraisal

A professional opinion of the market value of a property.

Appreciation

An increase in the value of a house due to changes in market conditions or other causes.

Assessed Value

The valuation placed upon property by a public tax assessor for purposes of taxation.

Assessment

The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.

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).

Assignment

The transfer of a mortgage from one person to another.

Assumable Loan

These loans may be passed on from a seller of a home to the buyer. The buyer "assumes" all outstanding payments.

Assumption clause

A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption fee

The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Assumption of Mortgage

An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.

Attorney-in-fact

One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

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B

Balance

The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal.

Balloon Mortgage

A mortgage which is payable in full after a period that is shorter than the term. In most cases, the balance is refinanced with the current or another lender. On a 7-year balloon loan, for example, the payment is usually calculated over a 30-year period, and the balance at the end of the 7th year must be repaid or refinanced at that time. Balloon mortgages are similar to ARMs in that the borrower trades off a lower rate in the early years against the risk of a higher rate later. They are riskier than ARMs because there is no limit on the extent of a rate increase at the end of the balloon period.

Balloon

The loan balance remaining at the time the loan contract calls for full repayment.

Bimonthly mortgage

A mortgage on which the borrower pays half the monthly payment on the first day of the month, and the other half on the 15th.

Biweekly Mortgage

A mortgage on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.

Bridge loan

A short-term loan, usually from a bank, that "bridges" the period between the closing date of a home purchase and the closing date of a home sale. To qualify for a bridge loan, the borrower must have a contract to sell the existing house.

Builder-financed construction

Having the builder finance the construction.

Buy-down

A permanent buy-down is the payment of points in exchange for a lower interest rate. See Points. A temporary buy-down concentrates the rate reduction in the early years. See Temporary Buy-Down.

Buy-up

Paying a higher interest rate in exchange for a rebate by the lender which reduces upfront costs. See Negative Points.

Balance sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Bankrupt

A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy

A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Before-tax income

Income before taxes are deducted.

Beneficiary

The person designated to receive the income from a trust, estate, or a deed of trust.

Bill of sale

A written document that transfers title to personal property.

Binder or "Offer to Purchase"

A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded. Broker (See Real Estate Broker)

Blanket insurance policy

A single policy that covers more than one piece of property (or more than one person).

Bond

An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Borrower

One who receives funds with the expressed or implied intention of repaying the loan in full.

Bridge loan

A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Building code

Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Building Line or Setback

Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buy down

Money advanced by an individual (seller, builder, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years.

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C

Cap

Same as Float-down.

Cash Flow Option Loan

Same as Flexible Payment ARM.

Cash-Out Refi

Refinancing for an amount in excess of the balance on the old loan plus settlement costs. The borrower takes "cash-out" of the transaction. This way of raising cash is usually an alternative to taking out a home equity loan.

Closing

On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, and the execution of all the documents associated with the sale and the loan. On a refinance, there is no transfer of ownership, but the closing includes repayment of the old lender.

Closing costs

Same as Settlement costs.

Closing date

The date on which the closing occurs.

Co-Borrowers

One or more persons who have signed the note, and are equally responsible for repaying the loan. Unmarried co-borrowers who live together are advised to agree beforehand on what happens if they split.

COFI

Cost of funds index. One of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage.

Conforming mortgage

A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.

Construction financing

The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house.

Contract knavery

Inserting provisions into a loan contract that severely disadvantage the borrower, without the borrower’s knowledge, and sometimes despite oral assurances to the contrary.  Prepayment penalties are perhaps the most frequently cited subject of such abuse.

Conventional mortgage

A home mortgage that is neither FHA-insured nor VA-guaranteed.

Conversion option

The option to convert an ARM to an FRM at some point during its life. These loans are likely to carry a higher rate or points than ARMs that do not have the option.

Correspondent

A lender who delivers loans to a (usually larger) wholesale lender against prior price commitments the wholesaler has made to the correspondent. The commitment protects the correspondent against pipeline risk.

COSI

Cost of savings index. One of many interest rate indexes  used to determine interest rate adjustments on an adjustable rate mortgage.

Co-signing a note

Assuming responsibility for someone else's loan in the event that that party defaults. A risk not to be taken lightly.

Credit report

A report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual's credit history.

Credit score

A single numerical score, based on an individual's credit history, that measures that individual's credit worthiness. Credit scores are as good as the algorithm used to derive them. The most widely used credit score is called FICO for Fair Issac Co. which developed it.

Cumulative interest

The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include up-front cash payments, and it is not adjusted for the time value of money. See Interest cost.

Current Index Value

The most recently published value of the index used to adjust the interest rate on an indexed ARM.

Call option

A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Capital expenditure

The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cap

A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Cash Out

A loan transaction in which the borrower receives funds at the time of closing.

Cash-out refinance

A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.

Certificate of deposit

A document written by a bank or other financial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specified interest rate within a specified time period. Certificate of Eligibility A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage. Certificate of Reasonable Value (CRV) A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of Title

A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title, which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Chain of title

The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change frequency

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Chattel

Another name for personal property.

Claim

An amount requested of an insurer, by a policyholder or a claimant, for an insured loss.

Clear title

A title that is free of liens or legal questions as to ownership of the property

Closing

The occasion where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called "settlement."

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 cost item

A fee or amount that a homebuyer must pay at closing for a single service, tax, or product.

Closing Day

The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Cloud (On Title)

An outstanding claim or encumbrance, which adversely affects the marketability of title.

Co-Borrower

An additional borrower on a loan. A co-borrower's obligation on a loan are the same as all other borrowers.

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 loss.

Coinsurance clause

A provision in a hazard insurance policy that states the amount of coverage that must be maintained -- as a percentage of the total value of the property -- for the insured to collect the full amount of a loss.

Collateral

An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection

The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Co-maker

A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.

Commission

Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.

Commitment Letter

A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Common area assessments

Levies against 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.

Common law

An unwritten body of law based on general custom in England and used to an extent in the United States.

Community property

In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Comparables

A abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to property under consideration, thereby indicating the approximate fair market value of the subject property.

Compound interest

Interest paid on the original principal balance and on the accrued and unpaid interest.

Condemnation

The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium

Individual ownership of a dwelling unit and an individual interest in the common areas and facilities, which serve the multi-unit project.

Condominium conversion

Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium hotel

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 owned.

Construction Loan

A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Consumer reporting agency (or bureau)

An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Contingency

A condition that must be met before a contract is legally binding.

Contract

An oral or written agreement to do or not to do a certain thing.

Contractor

In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Conventional Mortgage

Any mortgage that is not insured or guaranteed by the federal government.

Convertibility clause

A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified time.

Convertible Arm

An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Coverage

The amount of protection, usually expressed in a percentage of the total claim amount, an insured receives under a certificate.

Cooperative (co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cooperative Corporation

A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Cooperative Housing

An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation, which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cooperative mortgages

Mortgages related to a cooperative project.

Cooperative project

A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

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.

Cost of funds index (COFI)

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

Covenant

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Commitment

A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

Credit history

A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit life insurance

A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Creditor

A person to whom money is owed.

Credit Report

A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit repository

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Cure

A loan that is removed from a delinquency status with no loss to the insurer.

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D

Deadbeat

A borrower who doesn't pay.

Debtaholic

A borrower who cannot handle debt except by complete abstinence.

Debt consolidation

Rolling short-term debt into a home mortgage loan, either at the time of home purchase or later.

Deed in lieu of foreclosure

Deeding the property over to the lender as an alternative to having the lender foreclose on the property.

Default

Failure of the borrower to honor the terms of the loan agreement. Lenders (and the law) usually view borrowers delinquent 90 days or more as in default.

Deferred interest

Same as negative amortization.

Delinquency

A mortgage payment that is more than 30 days late. Don't confuse with Late payment.

Demand Clause

A clause in the note that allows the lender to demand repayment at any time for any reason.

Direct Lender

Same as lender.

Discount Mortgage Broker

A mortgage broker who claims to be compensated entirely by the lender rather than by the borrower.

Discount Points

Same as points.

Discretionary ARM

An adjustable rate mortgage on which the lender has the right to change the interest rate at any time subject only to advance notice. Discretionary ARMs are found abroad, not in the US.

Documentation requirements

The set of lender requirements that specify how information about a loan applicant's income and assets must be provided, and how it will be used by the lender.

Down payment

The difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $80,000, the down payment is $20,000 or 20%.

Dual Apper

A borrower who submits applications through two loan providers, usually mortgage brokers.

Dual index mortgage

A mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index.

Due-on-sale Clause

A provision of a loan contract that stipulates that if the property is sold the loan balance must be repaid. This bars the seller from transferring responsibility for an existing loan to the buyer when the interest rate on the old loan is below the current market. A mortgage containing a due-on-sale clause is not an assumable mortgage.

Deed-in-lieu

A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

Deed of Trust

Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.

Default

Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

Deficiency Judgment

A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states.

Delinquency

A loan in which a payment is overdue but not yet in default.

Deposit

A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Depreciation

A decline in the value of property; the opposite of "appreciation."

Discount Points

See Points.

Documentary Stamps

A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Dower

The rights of a widow in the property of her husband at his death.

Down Payment

The part of the purchase price, which the buyer pays in cash and does not finance with a mortgage

Due-on-sale provision

A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

Due-on-transfer provision

This terminology is usually used for second mortgages.

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E

Effective Rate

A term used in two ways. In one context it refers to a measure of interest cost to the borrower that is identical to the APR except that it is calculated over the time horizon specified by the borrower. The APR is calculated on the assumption that the loan runs to term, which most loans do not. In most texts on the mathematics of finance, however, the "effective rate" is the quoted rate adjusted for intra-year compounding. For example, a quoted 6% mortgage rate is actually a rate of .5% per month, and if interest received in the early months is invested for the balance of the year at .5%, it results in a return of 6.17% over the year. The 6.17% is called the "effective rate" and 6% is the "nominal" rate.

Equity

In connection with a home, the difference between the value of the home and the balance of outstanding mortgage loans on the home.

Equity Grabbing

A type of predatory lending where the lender intends for the borrower to default so the lender can grab the borrower's equity.

Escrow

An agreement that money or other objects of value be placed with a third party for safe keeping, pending the performance of some promised act by one of the parties to the agreement. It is common for home mortgage transactions to include an escrow agreement where the borrower adds a specified amount for taxes and hazard insurance to the regular monthly mortgage payment. The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due.

Earnest Money

The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement Rights

A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Effective age

An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age. Effective gross income

Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Eminent domain

The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

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 purchasing homes.

Encroachment

An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance

A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Endorser

A person who signs ownership interest over to another party. Contrast with co-maker.

Equal Credit Opportunity Act (ECOA)

A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity

The difference between the market value of a property and the homeowner's outstanding mortgage balance.

Equity Loan

A loan based on the borrower's equity in his or her home. Prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

Escrow account

The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.Escrow analysis. The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow collections

Funds collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance. Escrow disbursements. The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow payment

The portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Estate. The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction

The lawful expulsion of an occupant from real property.

Examination of title

The report on the title of a property from the public records or an abstract of the title.

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.

Executor

A person named in a will to administer an estate

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F

Fallout

Loan applications that are withdrawn by borrowers, sometimes because they have found a better deal.

Fannie Mae

One of two Federal agencies that purchase home loans from lenders. (The other is Freddie Mac). Both agencies finance their purchases primarily by packaging mortgages into pools, then issuing securities against the pools. The securities are guaranteed by the agencies. They also raise funds by selling notes and other liabilities.

Fees

The sum of all upfront cash payments required by the lender as part of the charge for the loan. Origination fees and points are expressed as a percent of the loan. Junk fees are expressed in dollars.

FHA mortgage

A mortgage on which the lender is insured against loss by the Federal Housing Administration, with the borrower paying the mortgage insurance premium. The major advantage of an FHA mortgage is that the required down payment is very low, but the maximum loan amount is also low.

FICO Score

See Credit Score.

Financing points

Including points in the loan amount.

First mortgage

A mortgage that has a first-priority claim against the property in the event the borrower defaults on the loan. For example, a borrower defaults on a loan secured by a property worth $100,000 net of sale costs. The property has a first mortgage with a balance of $90,000 and a second mortgage with a balance of $15,000. The first mortgage lender can collect $90,000 plus any unpaid interest and foreclosure costs.

The second mortgage lender can collect only what is left of the $100,000.

Fixed Rate Mortgage (FRM)

A mortgage on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the mortgage.

Flexible payment ARM

An adjustable rate mortgage on which the interest rate is adjusted monthly, that has a low initial minimum payment that rises by 7.5% a year for 5 years, but carries a risk of much larger payment increases.  Also called "option ARMs".

Float

Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing. Allowing the rate to float exposes the borrower to market risk, and also to the risk of being taken advantage of by the loan provider.

Float-down

A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period. Also called a cap. A float-down costs the borrower more than a lock because it is more costly to the lender.

Float-downs vary widely in terms of how often the borrower can exercise (usually only once), and exactly when the borrower can exercise. Do not confuse with interest rate increase caps and payment increase caps.

Foreclosure

The legal process by which a lender acquires possession of the property securing a mortgage loan when the borrower defaults.

Forbearance Agreement

An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrower’s delinquency.

Freddie Mac

One of two Federal agencies that purchase home loans from lenders. The other is Fannie Mae.

Fully Amortizing Payment

The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan at the then-existing interest rate, will pay off the loan over the remaining life. On FRMs the payment is always fully amortizing, provided the borrower has made no prepayments. (If the borrower makes prepayments, the monthly payment is more than fully amortizing). On GPMs, the payment in the early years is always less than fully amortizing. On ARMs, the payment may or may not be fully amortizing, depending on the type of ARM.

Fully Indexed Interest Rate

The current index value plus the margin on an ARM. Usually, initial interest rates on ARMs are below the fully indexed rate. If the index does not change from its initial level, after the initial rate period ends the interest rate will rise to the fully indexed rate after a period determined by the interest rate increase cap. For example, if the initial rate is 4% for 1 year, the fully indexed rate 7%, and the rate adjusts every year subject to a 1% rate increase cap, the 7% rate will be reached at the end of the third year.

Fair Credit Reporting Act

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair-market-value

The highest price that a buyer, willing but not compelled to buy would pay, and the lowest a seller, willing but not compelled to sell, would accept.

FDIC

(Federal Deposit Insurance Corporation). Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation. (FSLIC).

Fee simple

The greatest possible interest a person can have in real estate.

Fee simple estate

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

(Federal Housing Administration). A division of the Department of Housing and Urban Development. The FHA's main activity is the insuring of residential mortgage loans made by private lenders. It sets standards for construction and underwriting. FHA neither lends money, nor plans, nor constructs housing.

FHA Loan

Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

FHFB

(Federal Housing Finance Board). It oversees the credit functions of the twelve regional Federal Home Loan Banks.

FHLBB

(Federal Home Loan Bank Board). A regulatory and supervisory agency for federally charted savings institutions, which oversees the operations of the FSLIC and FHLMC. This agency was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. (See FIRREA.)

FHLMC

(Federal Home Loan Mortgage Corporation, Freddie Mac). A private corporation authorized by Congress, which became an independent, stockholder-owned government corporation with the passage of FIRREA. FHLMC promotes the flow of funds into the housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market.

Finance Charge

The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

Finder's fee

A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

FIRE

(Financial Institutions Reform, Recovery and Enforcement Act of 1989). An act signed into law in August 1989, by President Bush that restructured the thrift regulatory an insurance system.

Firm commitment

A lender's agreement to make a loan to a specific borrower on a specific property.

First Mortgage

The mortgage that has first claim in the event of default.

Fixed installment

The monthly payment due on a mortgage loan.

Fixed-Rate Mortgage

(FRM) A mortgage in which the interest rate does not change during the entire term of the loan.

FNMA

(Federal National Mortgage Association, Fannie Mae). A government-sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA and VA mortgages and conventional mortgages.

Fixture

Personal property that becomes real property when attached in a permanent manner to real estate.

Flood insurance

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Forfeiture

The loss of money, property, rights, or privileges due to a breach of legal obligation.

Foreclosure

The process by which a mortgage property may be sold when a mortgage is in default.

Fully amortized ARM

An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Full Recasting

Setting the P&I payments to the level that will fully amortize the loan's outstanding balance over the remaining term using the fully indexed accrual rate at the recasting point.

Fully Indexed Accrual Rate

The interest (accrual) rate resulting from the index at closing (or at another point in the loan) plus the lender's full spread, rounded as prescribed in the loan documents (often to the nearest 1/8th of 1%).

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G

Generic prices

Prices that assume a more or less standardized set of transaction characteristics that generally command the lowest prices. Generic prices are distinguished from transaction specific prices, which pertain to the characteristics of a specific transaction.

Gift of equity

A sale price below market value, where the difference is a gift from the sellers to the buyers. Such gifts are usually between family members. Lenders will usually allow the gift to count as down payment.

Good Fairy Syndrome

A belief that somewhere out there is a good fairy who will solve all our financial (and other) problems.

Good Faith Estimate

The form that lists the settlement charges the borrower must pay at closing, which the lender is obliged to provide the borrower within three business days of receiving the loan application.

Government National Mortgage Association (GNMA)

A Federal agency that guarantees mortgage securities that are issued against pools of FHA and VA mortgages.

Grace period

The period after the payment due date during which the borrower can pay without being hit for late fees. Grace periods apply only to mortgages on which interest is calculated monthly. Simple interest mortgages do not have a grace period because interest accrues daily.

Graduated payment mortgage (GPM)

A mortgage on which the payment rises by a constant percent for a specified number of periods, after which it levels out over the remaining term and amortizes fully. For example, the payment might increase by 7.5% every 12 months for 60 months, after which it is constant for the remaining term at a fully amortizing level.

Graduation period

The interval at which the payment rises on a GPM.

Graduation rate

The percentage increase in the payment on a GPM.

Guaranteed Mortgage Price Agreement

A proposal by HUD in 2002 to allow lenders and others to offer packages of loans and settlement services at a single price.

General Warranty Deed

A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Good Faith Estimate

An estimate of charges, which a borrower is likely to incur in connection with a loan closing.

Graduated Payment Mortgage

(GPM) A mortgage where the payments are scheduled to increase, usually annually, for a set number of years, and then level off. GPM can be used with either a fixed or adjustable interest rate, and usually has a 30-year term.

Grantee

That party in the deed who is the buyer or recipient.

Grantor

That party in the deed who is the seller or giver.

Gross Monthly Income

The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Growing Equity Mortgage

(GEM) A fixed rate, graduated payment mortgage with small initial payments that increase each year so that the loan pays off in a shortened term, usually 15 years.

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H

Hazard insurance

Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. Also known as "homeowner insurance", it is the second "I" in PITI.

Historical scenario

The assumption that the index value to which the rate on an ARM is tied follows the same pattern as in some prior historical period.  In meeting their disclosure obligations in connection with ARMs, some lenders show how the mortgage payment would have changed on a mortgage originated some time in the past. That is not very useful. Showing how a mortgage originated now would change if the index followed a historical pattern would be useful, but nobody does it.

Homebuyer Protection Plan

A plan purporting to protect FHA homebuyers against property defects.

Homeowner's equity

See Equity.

Homeowners insurance

Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. It is the second "I" in PITI.

Home equity line of credit (HELOC)

A mortgage set up as a line of credit against which a borrower can draw up to a maximum amount, as opposed to a loan for a fixed dollar amount. For example, using a standard mortgage you might borrow $150,000, which would be paid out in its entirety at closing. Using a HELOC instead, you receive the lender’s promise to advance you up to $150,000, in an amount and at a time of your choosing.

You can draw on the line by writing a check, using a special credit card, or in other ways.

Home Equity Conversion Mortgage (HECM)

A reverse mortgage program administered by FHA.

Home equity line

Same as HELOC.

Home equity loan

Same as second mortgage.

Home Keeper

A reverse mortgage program administered by Fannie Mae.

Housing bank

A government-owned or affiliated housing lender. With minor exceptions, government in the US has never loaned directly to consumers, but housing banks are widespread in many developing countries.

Housing bubble

A marked increase in house prices fueled partly by expectations that prices will continue to rise.

Housing Expense

The sum of mortgage payment, hazard insurance, property taxes, and homeowner association fees. Same as PITI and "monthly housing expense."

Housing Expense Ratio

The ratio of housing expense to borrower income, which is used (along with the total expense ratio and other factors) in qualifying borrowers.

Housing Investment

The amount invested in a house, equal to the sale price less the loan amount.

HUD1 form.

The form a borrower receives at closing that details all the payments and receipts among the parties in a real estate transaction, including borrower, lender, home seller, mortgage broker and various other service providers.

Hazard Insurance

Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner's Insurance

An insurance policy that combines liability coverage and hazard insurance.

Homeowner's Warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing Ratio

The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

HUD

(Department of Housing and Urban Development). A cabinet department responsible for the implementation and administration of government housing and urban development programs.

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I

Indexed ARM

An ARM on which the interest rate adjusts mechanically based on changes in an interest rate index, as opposed to a "discretionary ARM" on which the lender can change the rate at any time subject only to advance notice. All ARMs in the US are indexed.

Initial Interest Rate

The interest rate that is fixed for some specified number of months at the beginning of the life of a an ARM. The initial rate is sometimes referred to as a "teaser" when it is below the fully indexed interest rate.

Initial Rate Period

The number of months for which the initial rate holds, ranging from 1 month to 10 years.

Interest accrual period

The period over which the interest due the lender is calculated. If the interest accrual period on a 6 % mortgage for $100,000 is a year, as it is on some loans in the UK and India, the interest for the year is .06($100,000) = $6,000.  If interest accrues monthly, as it does on most mortgages in the US, the monthly interest is .06/12($100,000) = $500. If interest accrues biweekly, as on a few programs in the US, the biweekly interest is .06/26($100,000) = $230.77. And if interest accrues daily, as HELOCs and some other mortgages in the US do, the daily interest is .06/365($100,000) = $16 .44.

Interest cost

A time-adjusted measure of cost to a mortgage borrower. It is calculated in the same way as the APR except that the APR assumes that the loan runs to term, and is always measured before taxes.  Interest cost is measured over the individual borrower's time horizon, and it may be measured after taxes at the individual borrower's tax rate. In addition, the cost items included in interest cost may be more or less inclusive than those included in the APR.

Interest due

The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period. It is the same as interest payment except when the scheduled mortgage payment is less than the interest due, in which case the difference is added to the balance and constitutes negative amortization.

Interest-Only Mortgage

A mortgage on which for some period the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged.

Interest payment

The dollar amount of interest paid each month. It is the same as interest due so long as the scheduled mortgage payment is equal to or greater than than the interest due. Otherwise, the interest payment is equal to the scheduled payment.

Interest rate

The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A rate of 6%, for example, means a rate of 1/2% per month.  A mortgage interest rate is a rate on a loan secured by a specific property.

Interest Rate Adjustment Period

The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, a 3/3 ARM is one in which both periods are 3 years while a 3/1 ARM has an initial rate period of 3 years after which the rate adjusts every year.

Interest Rate Ceiling

The highest interest rate possible under an ARM contract; same as "lifetime cap." It is often expressed as a specified number of percentage points above the initial interest rate.

Interest rate floor

The lowest interest rate possible under an ARM contract. Floors are less common than ceilings.

Interest Rate Increase Cap

The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points, but may be 5 points if the initial rate period is 5 years or longer.

Interest rate decrease cap

The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted. It is usually 1 or 2 percentage points.

Interest rate index

The specific interest rate series to which the interest rate on an ARM is tied, such as "Treasury Constant Maturities, 1-Year," or "Eleventh District Cost of Funds." All the indices are published regularly in readily available sources.

Interim refinance

An ill-advised scheme to avoid a prepayment penalty by refinancing twice instead of once.

Internet Mortgages

Mortgages delivered using the internet as a major part of the communication process between the borrower and the lender.

Investor

In real estate, a borrower who owns or purchases a property as an investment rather than as a residence.

Income property

Real estate developed or improved to produce income.

Index

(Also called "Rate Index"). A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set AML accrual rates.

Initial Borrower Interest Rate

The rate on which the borrower's first payment is calculated.

Initial Borrower Payment Rate

The annual interest rate used to calculate the borrower's initial cash payment.

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 interest rate

The original interest rate of the mortgage at the time of closing.

Installment

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

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 disputes.

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 date.

Insured mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount

Interest

The fee charged for borrowing 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, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

Interest Rate

The percentage of an amount of money, which is paid for its use for a specified time.

Interest Rate Cap

A provision of an ARM limiting how much interest rates may increase per adjustment period.

Interest rate ceiling

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Investment property

A property that is not occupied by the owner.

IRA (Individual Retirement Account)

A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

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J

Jumbo mortgage

A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac, $333,700 in 2004 (see Non-conforming mortgage). However, some lenders use the term to refer to programs for even larger loans, such as, e.g., greater than $500,000.

Junk fees

A derogatory term for lender fees expressed in dollars rather than as a percent of the loan amount.

Joint tenancy

A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Judgment

A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

Judgment lien

A lien on the property of a debtor resulting from the decree of a court.

Judicial foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo Loans

Jumbo, or non-conforming, is a term used to describe a loan that does not conform to Fannie Mae or Freddie Mac guidelines. The typical Jumbo loan exceeds the maximum loan amounts described above.

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K

(empty)

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L

Late fees

Fees that lenders are entitled to collect from borrowers who don't pay within the grace period.  Most mortgage notes offer borrowers a 10 or 15-day grace period, with a late charge of about 5% on payments received on the 16^th or later.

Late payment

A payment received after the grace period stipulated in the note. Most mortgage grace periods are 10 or 15 days.

Lead-Generation Site

A mortgage web site designed to provide leads (potential customers) to lenders. Where a referral site provides information about lenders to consumers, with consumers contacting the lenders, a lead-generation site provides information about the consumers to the lenders, and the lenders contact the consumers. They are sometimes called "auction sites" because lenders post their prices directly to the consumer.

Lease-to-own purchase

A transaction in which a hopeful home buyer leases a home with an option to buy it within a specified period.

Lender

See Mortgage lender.

Lien

The lender’s right to claim the borrower’s property in the event the borrower defaults. If there is more than one lien, the claim of the lender holding the first lien will be satisfied before the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc.

Loan amount

The amount the borrower promises to repay, as set forth in the mortgage contract. It differs from the amount of cash disbursed by the lender by the amount of points and other upfront costs included in the loan.

Loan discount fee

The term used to describe points on the Good Faith Estimate.

Loan "flipping"

The process of raising cash periodically through successive cash_out_refinancings.  It is a scam initiated by mortgage brokers that victimizes wholesale lenders, with the connivance of borrowers.

Loan modification

A change in the terms of a loan, usually the interest rate and/or term, in response to the borrower's inability to make the payments under the existing term.

Loan Officer

Employees of lenders or mortgage brokers who find borrowers, sell and counsel them, and take applications.

Loan provider

A lender or a mortgage broker.

Loan-to-value ratio

The loan amount divided by the lesser of the selling price or the appraised value. Also referred to as LTV. The LTV and down payment are different ways of expressing the same set of facts.

Lock

An option exercised by the borrower, at the time of the loan application or later, to "lock in" the rates and points prevailing in the market at that time. The lender and borrower are committed to those terms, regardless of what happens between that point and the closing date.

Lock commitment letter

A written statement from a lender verifying that the price and other terms of a loan have been locked. Borrowers who lock through a mortgage broker should always demand to see the lock commitment letter.

Lock failure

The inability or unwillingness of a lender to honor a mortgage price that a borrower had believed was guaranteed.

Lock jumper

A borrower, usually refinancing rather than purchasing a home, who allows a lock to expire when interest rates go down in order to lock again at the lower rate.

Lock period

The number of days for which any lock or float-down holds. Ordinarily, the longer the period, the higher the price to the borrower.

Late charge

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Lease

A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

Leasehold estate

A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Legal description

A property description, recognized by law that is sufficient to locate and identify the property without oral testimony.

Lender

An institution that makes loans to borrowers on real estate.

Liabilities

A person's financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

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.

Lien

A legal claim against a property that must be paid when the property is sold.

Lifetime Cap

A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Lifetime payment cap

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Line of credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid asset

A cash asset or an asset that is easily converted into cash.

Loan

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

Loan Commitment

Formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Loan origination

The process by which a mortgage lender brings into existence a mortgage secured by real property.

Loan Servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan -To-Value

(LTV). The loan-to-value ratio (LTV) is the original loan amount divided by the lower of the sales price or the appraised value.

Lock

The period, expressed in days, during which a lender will guarantee a rate.

Lock-in period

The time period during which the lender has guaranteed an interest rate to a borrower.

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M

Mandatory disclosure

The array of laws and regulations dictating the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure.

Manufactured housing

A house built entirely in a factory, transported to a site and installed there. They are usually built without knowing where they will be sited, and are subject to a Federal building code administered by HUD.

Margin

The amount added to the interest rate index, ranging generally from 2 to 3 percentage points, to obtain the fully indexed interest rate on an ARM.

Market niche

A particular combination of loan, borrower and property characteristics that lenders use in setting prices and underwriting requirements. These characteristics are believed to affect the default risk or cost of the loan. As examples, borrowers who don't intend to occupy the house they purchase pay more than those who do, and borrowers who refinance only the balance on their existing loan pay less than those who take "cash out".

Maturity

The period until the last payment is due. This is usually but not always the term, which is the period used to calculate the mortgage payment.

Maximum loan amount

The largest loan size permitted on a particular loan program. For programs where the loan is targeted for sale to Fannie Mae or Freddy Mac, the maximum will be the largest loan eligible for purchase by these agencies. On FHA loans, the maximums are set by the Federal Housing Administration, and vary somewhat by geographical area. On other loans, maximums are set by lenders.

Maximum loan to value ratio

The maximum allowable loan-to-value ratio on the selected loan program.

Maximum lock

The longest period for which the lender will lock the rate and points on any program. The most common maximum lock period is 60 days, but on some programs the maximum is 90 days; only a few go beyond 90 days.

Minimum down payment

The minimum allowable ratio of down payment to sale price on any program. If the minimum is 10%, for example, it means that you must make a down payment of at least $10,000 on a $100,000 house, or $20,000 on a $200,000 house. For articles on down payment, see Down Payment.

Monthly housing expense

Same as Housing expense.

Monthly debt service

Monthly payments required on credit cards, installment loans, home equity loans, and other debts but not including payments on the loan applied for.

Monthly total expenses

Same as Total housing expense.

Mortgage

A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan.  The term “mortgage" or “mortgage loan" is used loosely to refer both to the lien and the loan. In most cases, they are defined in two separate documents: a mortgage and a note.

Mortgage auction site

See Lead Generation Site.

Mortgage bank

Same as mortgage company.

Mortgage Broker

An independent contractor who offers the loan products of multiple lenders, termed wholesalers. A mortgage broker counsels on the loans available from different wholesalers, takes the application, and usually processes the loan. When the file is complete, but sometimes sooner, the lender underwrites the loan. In contrast to a correspondent, a mortgage broker does not fund a loan.

Mortgage Company

A mortgage lender who sells all loans in the secondary market. As distinguished from a portfolio lender, who retains loans in its portfolio. Mortgage companies may or may not service the loans they originate.

Mortgage formulas

Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR.

Mortgage Insurance

Insurance against loss provided to a mortgage lender in the event of borrower default. In most cases, the borrower pays the premiums.

Mortgage insurance premium

The up-front and/or periodic charges that the borrower pays for mortgage insurance. There are different mortgage insurance plans with differing combinations of up-front, monthly and annual premiums. The most widely used premium plan is a monthly charge with no upfront premium.

Mortgage insurance cancellation

Canceling a mortgage insurance policy.

Mortgage Lender

The party who disburses funds to the borrower at the closing table. The lender receives the note evidencing the borrower's indebtedness and obligation to repay, and the mortgage which is the lien on the subject property.

Mortgage payment

The monthly payment of interest and principal made by the borrower.

Mortgage price

The interest rate, points and fees paid to the lender and/or mortgage broker. On ARMs, the price also includes the fully indexed rate and the maximum rate.

Mortgage program

A bundle of mortgage characteristics that lenders see fit to distinguish as a distinct instrument. These include whether it is an FRM, ARM, or Balloon; the term; the initial rate period on an ARM; whether it is FHA-insured or VA-guaranteed; and if is not FHA or VA, whether it is "conforming" (eligible for purchase by Fannie Mae or Freddie Mac) or "non-conforming".

Mortgage referrals

Advice on where to go to get a mortgage.

Mortgage scams

Deceptive and exploitative schemes by lenders, brokers, home sellers and sometimes even borrowers.

Mortgage shopping

Trying to find the best deal on a mortgage.

Marketable Title

A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

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 project.

Maturity

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Merged credit report

A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

Margin

(Also called "Spread"). The amount the lender adds to the index to determine the Fully Indexed Accrual Rate.

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 Housing Expense

Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.

Monthly payment mortgage

A mortgage that requires payments to reduce the debt once a month.

Mortgage

A legal document that pledges a property to the lender as security for a payment of a debt.

Mortgage Banker

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

Mortgage Broker

A company that for a fee matches borrowers with lenders.

Mortgagee

The lender in a mortgage agreement.

Mortgage Commitment

A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance Premium

The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

Mortgage life insurance

A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage Note

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

Mortgagor

The borrower in a mortgage agreement.

Multidwelling units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multifamily mortgage

A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

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N

Negative Amortization

A rise in the loan balance when the mortgage payment is less than the interest due. Sometimes called "deferred interest." Negative amortization arises most frequently on ARMs.

Negative amortization cap

The maximum amount of negative amortization permitted on an ARM, usually expressed as a percentage of the original loan amount (e.g., 110%). Reaching the cap triggers an automatic increase in the payment, usually to the fully amortizing payment level, overriding any payment increase cap.

Negative Points

Points paid by a lender for a loan with a rate above the rate on a zero point loan. For example, a wholesaler quotes the following prices to a mortgage broker. 8%/0 points, 7.5%/3 points, 8.75%/-3 points. On mortgage web sites, negative points are usually referred to as "rebates" because they are used to reduce a borrower's settlement costs. When negative points are retained by a mortgage broker, they are called a "yield spread premium".

Net branch

A facility offered by some lenders to mortgage brokers where de jure the brokers become employees of the lender but de facto they retain their independence as brokers. One of the advantages of this arrangement to brokers is that they need not disclose yield spread premiums received from lenders.

Net jumping

Using a broker's time and expertise to become informed and creditworthy, then jumping to the internet to get the loan.

Nichification

Proliferation in the number of loan, borrower and property characteristics used by lenders to set mortgage prices and underwriting requirements.

No change scenario

On an ARM, the assumption that the value of the index to which the rate is tied does not change from its initial level.

No-Cost mortgage

A mortgage on which all settlement costs except per diem interest, escrows, homeowners insurance and transfer taxes are paid by the lender and/or the home seller.

Non-conforming mortgage

A mortgage that does not meet the purchase requirements of the two Federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons such as poor credit or inadequate documentation.

Non-Permanent resident alien

A non-citizen with a green card employed in the US. As distinct from a permanent resident alien, which lenders do not distinguish from US citizens. Non-permanent resident aliens are subject to somewhat more restrictive qualification requirements than US citizens.

No asset loan

A documentation requirement where the applicant's assets are not disclosed.

No income loan

A documentation requirement where the applicant's income is not disclosed.

No-Surprise adjustable rate mortgage

An ARM with a preset graduated payment combined with variable term.

Nominal interest rate

A quoted interest rate that is not adjusted for either intra-year compounding, or for inflation. A quoted rate of 6% on a mortgage, for example, is nominal. Adjusted rates are called "effective" see Effective rate.

No ratio loan

A documentation requirement where the applicant's income is disclosed and verified but not used in qualifying the borrower. The conventional maximum ratios of expense to income are not applied.

Note

A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property, usually in two documents.

Negative Amortization

(Also called "Deferred Interest"). A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization

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.

Net Effective Income

Gross income less federal income tax.

Net Worth

The value of all assets, including cash, less total liabilities.

No cash-out refinance

A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

Non-liquid asset

An asset that cannot easily be converted into cash.

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 mortgage note.

Notice of Default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

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O

Option ARM

Same as Flexible Payment ARM.

Origination fee

An upfront fee charged by some lenders, usually expressed as a percent of the loan amount. It should be added to points in determining the total fees charged by the lender that are expressed as a percent of the loan amount. Unlike points, however, an origination fee does not vary with the interest rate.

Overage

The difference between the price posted to its loan officers by a lender or mortgage broker, and the price charged the borrower.

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.

OTC

(The Office of Thrift Supervision). Charters federal thrifts, serves as the primary federal examiner and regulator of federal and state-chartered savings associations, and administers laws governing savings and loan holding companies.

Owner financing

A property purchase transaction in which the property seller provides all or part of the financing.

Owner Occupied

"Owner Occupied" means the property is the owner's primary residence.

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P

Partial Prepayment

Making a payment larger than the scheduled payment as a way of paying off the loan earlier. See Prepayment.

Pay Option ARM

Same as Flexible Payment ARM.

Paydown Magic

Belief that there is a special way to pay down the balance of a home mortgage faster, if you know the secret.

Payment adjustment interval

The period between payment changes on an ARM, which may or may not be the same as the interest rate adjustment period. Loans on which the payment adjusts less frequently than the rate may generate negative amortization.

Payment Increase Cap

The maximum percentage increase in the payment on an ARM at a payment adjustment date. A 7.5% cap is common.

Payment Decrease Cap

The maximum percentage decrease in the payment on an ARM at a payment adjustment date.

Payment period

The period over which the borrower is obliged to make payments. On most mortgages, the payment period is a month, but on some it is biweekly.

Payment power

A program begun by Fannie Mae in 2003-4 that allows a borrower to skip up to 2 mortgage payments in any 12 month period, and up to 10 over the life of a loan.

Payment Rate

The interest rate used to calculate the mortgage payment, which is usually but not necessarily the interest rate.

Payment Shock

A very large increase in the payment on an ARM that may surprise the borrower. Also used to refer to a large difference between the rent being paid by a first-time home buyer, and the monthly housing expense on the purchased home.

Payoff month

The month in which the loan balance is paid down to zero. It may or may not be the term.

Per diem interest

Interest from the day of closing to the first day of the following month. In some cases, however, the borrower can get a credit at closing by making the first payment a month earlier.

Periodic refinancing

An ill-advised scheme to tap into equity for cash advances through periodic refinancings.

Permanent buydown

Paying points as a way of reducing the interest rate.

Pick a Payment ARM

Same as Flexible Payment ARM.

Pipeline risk

The lender's risk that between the time a lock commitment is given to the borrower and the time the loan is closed, interest rates will rise and the lender will take a loss on selling the loan.

PITI

Shorthand for principal, interest, taxes and insurance, which are the components of the monthly housing expense.

PMI

Private mortgage insurance, as distinguished from insurance provided by government under FHA and VA. See Mortgage insurance.

Points

An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., "3 points" means a charge equal to 3% of the loan balance. It is common today for lenders to offer a wide range of rate/point combinations, especially on fixed rate mortgages (FRMs), including combinations with negative points. On a negative point loan the lender contributes cash toward meeting closing costs. Positive and negative points are sometimes termed "discounts" and "premiums," respectively.

Portable mortgage

A mortgage that can be moved from one property to another. These were introduced in the US by E*TRADE Mortgage in 2003.

Portfolio Lender

A lender that holds the loans it originates in its portfolio rather than selling them, as a temporary lender does.

Pre-approval

A commitment by a lender to make a mortgage loan to a specified borrower, prior to the identification of a specific property. It is designed to make it easier to shop for a house. Unlike a pre-qualification, the lender checks the applicant's credit.

Predatory lending

A variety of unsavory lender practices designed to take advantage of unwary borrowers.

Prepayment

A payment made by the borrower over and above the scheduled mortgage payment. If the additional payment pays off the entire balance it is a "prepayment in full"; otherwise, it is a "partial prepayment."

Prepayment penalty

A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months interest.

Pre-Qualification

Same as qualification.

Price-Gouging

Charging interest rates and/or fees that are excessive relative to what the same borrowers could have found had they shopped the market.

Primary residence

The house in which the borrower will live most of the time, as distinct from a second home or an investor property that will be rented.

Principal

The portion of the monthly payment that is used to reduce the loan balance. See Amortization.

Principal limit

The present value of a house, given the elderly owner's right to live there until death or voluntary move-out, under the FHA reverse mortgage program.

Private mortgage insurance

Mortgage insurance provided by private mortgage insurance companies, or PMIs.

Processing

Compiling and maintaining the file of information about a mortgage transaction, including the credit report, appraisal, verification of employment and assets, and so on. The processing file is handed off to underwriting for the loan decision.

Property flipping

Successive sham home sales at progressively higher prices as part of a scheme to defraud FHA.

Payment Adjustment Period

The length of time (typically a year) between changes to the AML borrower's P&I payment.

Payment Buy down

Payment buy downs occur when a third party, typically a builder, pays part of the initial P&I payments for a year or two, so that the borrower has smaller payments and can qualify for the loan.

Payment Cap

A limit on the amount the payment can be changed at the end of each Payment Adjustment Period.

Payment Discount

In a payment discount, the lender reduces the first year's interest rate to make the mortgagor more attractive to borrowers.

Periodic payment cap

A limit on the amount that payments can increase or decrease during any one-adjustment period.

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 might be.

Personal property

Any property that is not real property.

PITI

Principal, Interest, Taxes and Insurance are components of a mortgage payment.

Plat

A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Points

A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.

Power of attorney

A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Prepayment

Payment of mortgage loan, or part of it, before due date.

Pre-qualification

The process of determining how much money a prospective homebuyer will be eligible to borrow before application.

Prime rate

The interest rates that banks charge to their preferred customers.

Principal

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

Private Mortgage Insurance

Insurance provided by nongovernmental insurers that protect lenders against loss if a borrower defaults.

Promissory note

A written promise to repay a specified amount over a specified period of time.

Public auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

Planned Unit Development (PUD)

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 unit owners.

Purchase Agreement

See Agreement of Sale.

Purchase money transaction

The acquisition of property through the payment of money or its equivalent.

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Q

Qualification

The process of determining whether a prospective borrower has the ability, meaning sufficient assets and income, to repay a loan. Qualification is sometimes referred to as "pre-qualification" because it is subject to verification of the information provided by the applicant. Qualification is short of approval because it does not take account of the credit history of the borrower. Qualified borrowers may ultimately be turned down because, while they have demonstrated the capacity to repay, a poor credit history suggests that they may be unwilling to pay.

Qualification rate

The interest rate used in calculating the initial mortgage payment in qualifying a borrower. The rate used in this calculation may or may not be the initial rate on the mortgage. On ARMs, for example, the borrower may be qualified at the fully indexed rate rather than the initial rate.

Qualification ratios

Requirements stipulated by the lender that the ratio of housing expense to borrower income, and housing expense plus other debt service to borrower income, cannot exceed specified maximums, e.g., 28% and 35%. These may reflect the maximums specified by Fannie Mae and Freddie Mac; they may also vary with the loan-value ratio and other factors.

Qualification requirements

Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ratios, and so on. Less comprehensive than underwriting requirements, which take account of the borrower's credit record.

Qualifying Ratios

Guidelines applied by lenders to determine how large a loan to grant a homebuyer.

Quitclaim Deed

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

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R

Rate

See Interest Rate.

Rate/point breakeven

The period you must retain a mortgage in order for it to be profitable to pay points to reduce the rate.

Rate/point options

All the combinations of interest rate and points that are offered on a particular loan program. On an ARM, rates and points may also vary with the margin and interest rate ceiling.

Rate protection

Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes. This protection can take the form of a "lock" where the rate and points are frozen at their initial levels until the loan closes; or a "float-down" where the rates and points cannot rise from their initial levels but they can decline if market rates decline. In either case, the protection only runs for a specified period. If the loan is not closed within that period, the protection expires and the borrower will either have to accept the terms quoted by the lender on new loans at that time, or start the shopping process anew.

Rebate

Same as Negative points.

Recast payment

Raising the mortgage payment to the fully amortizing payment. Periodic recasts are sometimes used on ARMs in lieu of or in addition to negative amortization caps.

Referral site

A mortgage web site that introduces potential borrowers to participating lenders, in some cases to multiple hundreds of them. The principal lure to the consumer is information on generic prices posted by the lenders.

Refinance

Paying off an old loan while simultaneously taking a new one. This may be done to reduce borrowing costs under conditions where the borrower can obtain a new loan at an interest rate below the rate on the existing loan. It may be done to raise cash, as an alternative to a home equity loan.  Or it may be done to reduce the monthly payment.

Required cash

The total cash required of the home buyer to close the transaction, including down payment, points and fixed dollar charges paid to the lender, any portion of the mortgage insurance premium that is paid up-front, and other settlement charges associated with the transaction such as title insurance, taxes, etc. The total required cash is shown on the Good Faith Estimate of Settlement that every borrower receives.

RESPA

The Real Estate Settlement Procedures Act, a Federal consumer protection statute first enacted in 1974. RESPA was designed to protect home purchasers and owners shopping for settlement services by mandating certain disclosures, and prohibiting referral fees and kickbacks.

Retail lender

A lender who offers mortgage loans directly to the public. As distinct from a wholesale lender who operates through mortgage brokers and correspondents.

Reverse mortgage

A loan to an elderly home owner on which the balance rises over time, and which is not repaid until the owner dies, sells the house, or moves out permanently.

Right of rescission

The right of refinancing borrowers, under the Truth in Lending Act, to cancel the deal at no cost to themselves within 3 days of closing.

Radon

A radioactive gas found in some homes that in sufficient concentrations could cause health problems.

Rate Caps

(Also called "Interest Rate Caps"). A limit on the amount of which the interest rate charged to the borrower can be changed.

Rate lock

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time.

Real Estate Broker

A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Real Estate Owned

(REO). A term frequently used by lending institution as applied to ownership of real property acquired for investment or as a result of foreclosure.

RESPA

(Real Estate Settlement Procedures Act). A Federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.

Real property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

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.

Recission

The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent.

Recorder

The public official who keeps records of transactions that affects real property in the area.

Recording

The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record. Refinancing

The process of the same mortgagor paying off one loan with the proceeds from another loan.

Rehabilitation mortgage

A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.

Remaining balance

The amount of principal that has not yet been repaid.

Remaining term

The original amortization term minus the number of payments that have been applied.

Repayment plan

An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions."

Replacement reserve fund

A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.

Restrictive Covenants

Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

Revolving liability

A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

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 tenant.

RTC

(Resolution Trust Corporation). Formed to resolve thrift failures over the next three years and dispose of their assets and liabilities.

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Scenario analysis

Determining how the interest rate and payment on an ARM will change in response to specified future changes in market interest rates, called "scenarios".

Scheduled mortgage payment

The amount the borrower is obliged to pay each period, including interest, principal, and mortgage insurance, under the terms of the mortgage contract.  Paying less than the scheduled amount results in delinquency.

Second mortgage

A loan with a second-priority claim against a property in the event that the borrower defaults. The lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.

Secondary markets

Markets in which mortgages or mortgage-backed securities are bought and sold.

Self-employed borrower

A borrower who must document income using tax returns rather than information provided by an employer.  This complicates the process somewhat.

Seller contribution

A contribution to a borrower's down payment or settlement costs made by a home seller, as an alternative to a price reduction.

Servicing

Administering loans between the time of disbursement and the time the loan is fully paid off. This includes collecting monthly payments from the borrower, maintaining records of loan progress, assuring payments of taxes and insurance, and pursuing delinquent accounts.

Servicing agent

The party who services a loan, who may or may not be the lender who originated it.

Servicing release premium

A payment made by the purchaser of a mortgage to the seller for the release of the servicing on the mortgage. It has no direct relevance to borrowers.

Servicing transfer

When one servicing agent is replaced by another.

Settlement Costs

Costs that the borrower must pay at the time of closing, in addition to the down payment.

Shared appreciation mortgage

A mortgage on which the borrower gives up a share in future price appreciation in exchange for a lower interest rate and/or interest deferral.

Shopping site

A type of multi-lender web site that offers borrowers the capacity to shop among multiple competing lenders.

Short sale

An agreement between a mortgage borrower in distress and the lender that allows the borrower to sell the house and remit the proceeds to the lender. It is an alternativ

Silent second

A second mortgage offered at preferential (subsidized) terms to those who qualify. For example, a labor union may offer members who are first-time home buyers a silent second to finance closing costs or th