Glossary of Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Adjustable Rate Mortgage (ARM)  -  A home loan that permits the lender to adjust its interest rate periodically during the life of the loan on the basis of changes in a specified financial index.

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

Adjustment period  -  The period that elapses between the adjustment dates for an adjustable rate mortgage (ARM), typically 6 months or 1 year for most popular ARMs.

Amortization  -  The gradual repayment of a home loan by periodic installments.

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

Amortization Term (period)  -  The amount of time it takes to pay off the loan. The amortization term is expressed as a number of months. For example, for a 30 year fixed rate loan, the amortization term is 360 months.

Amortization  -  To repay a loan with regular payments that cover both principal and interest. 

Annual Percentage Rate (APR)  -  The effective cost of a home loan stated as a yearly rate taking into account such items as interest, mortgage insurance, most closing costs, discount points and loan origination fees. Disclosure of APR is required by the Truth-In-Lending Law.

Application  -  A form to be completed by a home loan applicant with the lender's assistance to provide pertinent information about a prospective borrower's employment, income, assets, debts and other financial information, about the purpose of the home loan, and about the property securing the home loan. Lenders also sometimes call it a 1003-the form number of Fannie Mae's standard application form.

Application Fee  -  A fee usually paid at the time an application is given to a lender for helping to complete and review an application. Some lenders collect fees for a property appraisal and a credit report, instead of an application fee, at the time of application.

Appraisal  -  A written analysis or opinion of the estimated value of a property prepared by a qualified appraiser.

Appraised Value -  The dollar figure for a property's estimated fair market value, based on an appraiser's knowledge, experience, and analysis of the property and comparable properties near by.

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

Appreciation  -  An increase in the value of a property due to changes in market conditions or other causes. Inflation, increased demand, home improvement, and sweat equity are all causes of appreciation. The opposite of depreciation.

Assessed Value  -  The value used to determine property taxes, based on a public tax assessor's opinion.

Assumable Loan  -  A home loan that allows a new purchaser of the home to take over ("assume") the loan obligations of the seller when a home is sold.

Assumption  -  The buyer's acceptance of liability for the seller's existing home loan. See assumable loan.

B

Balloon Loan  -  A loan that has level monthly payments that will amortize it over a stated term (e.g., 30 years) but that requires a lump sum payment of the entire principal balance at the end of a shorter term (e.g., 10 years).

Balloon Payment  -  The final lump sum payment that is made at the end of the shorter term for a balloon loan and pays the loan in full.
 
Biweekly Payment Loan  -  A loan that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30 year fixed rate loan, and they are usually drafted from the borrower's bank account. The result for the borrower is faster amortization leading to substantial interest savings from faster principal reduction.

Bridge Loan  -  A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower's present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as a "swing loan."

Broker  -  A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction or negotiating the terms of a home loan. See mortgage broker.

Buydown Account  -  An account in which funds are held so that they can be applied as part of the monthly loan payment as each payment comes due during the period that an interest rate buydown plan is in effect. For example, if a seller agrees to help reduce a buyer's monthly payment during the first year of a loan, the seller may put money in a buydown account which is then paid to the lender each month to reduce the buyer's monthly payment. This is more commonly done through a buydown paid directly to the lender at closing.

Buydown  -  A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.

C

Cap  -  A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment. See lifetime rate cap, periodic payment cap, and periodic rate cap.
 
Cash Available for Closing  -  Borrower funds available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from certain sources, borrower's cash available for closing does not include cash reserves or money from other sources.

Cash-Out Refinance  -  A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement, or any other purpose. The borrower effectively borrows against the home equity.

Ceiling  -  The maximum interest rate that can accrue on a variable rate loan or adjustable rate mortgage (ARM). See lifetime rate cap.

Clear Title  -  A title that is marketable and is free of liens or disputed legal questions as to ownership of the property.

Closing  -  A meeting at which all documents are signed and all expenses are paid to transfer ownership of property. Also called "settlement."

Closing Cost Item  -  A fee or amount that a home buyer must pay at closing for a particular service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 settlement statement.

Closing Costs  -  Various expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include items such as broker's commissions, discount points, origination fees, attorney's fees, taxes, title insurance premiums, escrow agent fees, and charges for obtaining appraisals, inspections and surveys. Closing costs will vary according to the area of the country. Lenders or real estate professionals often provide estimates of closing costs to prospective homebuyers even before the HUD-1 settlement statement is delivered.

Closing Statement  -  An accounting of funds given to both buyer and seller before real estate is sold. See HUD-1 settlement statement.

Cloud On Title  -  An outstanding claim or lien, revealed by a title search, that adversely affects the owner's title to real estate. Usually, clouds on title cannot be removed except by a release, or court action.

Combined Loan To Value (CLTV)  -  The ratio of the total amount borrowed on all mortgages against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage and a $10,000 2nd mortgage on a home with an appraised value of $100,000, the CLTV is 90% ($80,000+$10,000 = $90,000 / $100,000 = 90%).

Commission  -  The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan (such as 3%, 5%, or 6%).

Commitment Letter  -  A formal notification from a lender stating that the borrower's loan has been conditionally approved and specifying the terms under which lender agrees make the loan. Also known as a "loan commitment."

Co-signer  -  A person who signs a promissory note along with the borrower. A co-maker's signature helps to assure that the loan will be repaid. The borrower and the co-maker are jointly responsible for the repayment of the loan.

Credit History - An evaluation of an individual's capacity and history of debt repayment. A credit history helps a lender to determine whether a potential borrower is likely to repay a loan in a timely manner. 

Credit Life Insurance  -  A type of insurance that pays off a loan if one of the borrowers dies while the policy is in force.

Credit Limit  -  The maximum amount that can be borrowed under the home equity line of credit.

Creditor  -  A person to whom money is owed.

Credit Rating  -  An expression of creditworthiness based upon present financial condition and past credit history.

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

Credit Scoring  -  Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors. According to Fannie Mae--one of the major investors in home loans, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan.

Cumulative Interest  -  Total interest accrued.

Curtailment  -  A payment that reduces the principal balance of a loan.

D

Deed  -  The legal document conveying title to a property.

Deed-in-Lieu  -  A deed given by a borrower to the lender to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

Deed of Trust  -  The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.

Default  -  Failure to make loan payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency  -  Failure to make mortgage payments when due.

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

Depreciation  -  A decline in the value of property because of physical or economic changes such as wear and tear; the opposite of appreciation.

Discount Points  -  Amounts paid to the lender at origination to lower the rate on the face of the note. See point.

Down Payment  -  The part of the purchase price of a property that the buyer pays in cash and does not finance with a home loan.

E

Earnest Money Deposit (earnest money) - A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement  -  A right of way giving to persons other than the owner to access to or over a property.

Encroachment  -  An improvement that physically intrudes or trespasses on another's property.

Encumbrance  -  Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, deeds, or restrictions.

Endorser  -  A person who signs a check or promissory note over to another party. Contrast with co-signer.

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

Equity  -  A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on any home loans or liens against the property.

Escrow  -  An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow (or impound) Account  -  The account in which a loan servicer holds the borrower's escrow payments prior to paying property expenses, such as property taxes or homeowners insurance.

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 loan servicer and set aside in an escrow account to pay borrower expenses such as property taxes, mortgage insurance, and hazard homeowners insurance.
 
Escrow Disbursements  -  The use of escrow funds to pay real estate taxes, homeowners insurance, mortgage insurance, and other property expenses as they become due.

Escrow Payment  -  The portion of a borrower's monthly payment that is held by the loan servicer to pay for taxes, hazard homeowners insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

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

F

Fair Credit Reporting Act  -  A consumer protection law that regulates the disclosure and use of consumer credit information, establishes rules for credit reporting to consumer credit reporting agencies, and establishes procedures for a consumer to view his or her credit report and correct mistakes on it.

Fair Market Value  -  The price that a buyer, willing but not compelled to buy, and a seller, willing but not compelled to sell, would agree on.

Fee Simple  -  An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
 
FHA Home Loan  -  A mortgage home loan that is insured by the Federal Housing Administration (FHA). Also known as a government loan.

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

Fixed Installment  -  The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Fixed period ARM  -  Provides a fixed rate for 3, 5, 7 or 10 years then adjusts annually based on a financial index for the remaining loan term.

Fixed Rate Loan   -  A mortgage in which the interest rate does not change during the entire term of the loan.

Fixture  -  Personal property that becomes real property when attached in a permanent manner to real estate (such as a lighting fixture or an in-ground spa).

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

Foreclosure  -  The legal process by which a borrower's interest in mortgaged property is taken because of a default on the loan. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

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

Grantee  -  The person to whom an interest in real property is conveyed (e.g. the buyer).

Grantor  -  The person who conveys an interest in real property (e.g. the seller).

Ground Rent  -  The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

H

Homeowner's insurance (hazard insurance)  -  Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents. See also homeowner's insurance.

Home Equity Line of Credit (HELOC)  -  A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

Home Inspection  -  A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

Homeowners' Association  -  A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowner's Insurance  -  Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents.
 
Homeowner's Warranty (HOW) - A type of insurance that covers repairs to specified parts of a house for a specific period of time. It may be provided by the builder or property seller as a condition of the sale but homeowners can also purchase it.

HUD-1 settlement statement  -  A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet

I

Initial Interest Rate  -  The starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. At the end of the effective period for the initial rate, the interest rate adjusts periodically during the life of the loan based on changes in a specified financial index. Sometimes known as "start rate," "intro rate" or "teaser rate."

Introductory Rate  -  The starting rate for a home equity loan or line of credit, usually a discounted rate, for a short period of time. See initial interest rate.

Insurable Title  -  A property title that a title insurance company agrees to insure against defects and disputes.

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.

Interest Payment  -  The portion of a monthly payment that goes to interest based on the amortization schedule.

Interest Rate  -  The percentage rate of return charged for use of a sum of money. This percentage rate is specified in the mortgage note. See note rate.
interest rate buydown plan.  A temporary buydown gives a borrower a reduced monthly payment during the first few years of a home loan and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.

Investment Property  -  A property that is not occupied by the owner and is generally rented to a tenant to produce income.

J

Joint Tenancy  -  A form of co-ownership that gives each tenant equal undivided interest and rights in the property, including the right of survivorship. Contrast with tenancy in common, tenancy by the entirety.

Judgment  -  A decree by a court of law that one person, a debtor, is indebted to another, a creditor, in a specified amount. The court may place a lien against the debtor's real property as collateral for payment of the judgment to the creditor.

Judgment Lien  -  A lien on the property of a debtor resulting from a judgment.

Jumbo Loan  -  A loan that exceeds Fannie Mae's legislated mortgage amount limits of $300,700. Also called a nonconforming loan.

K

L

Late Charge  -  The penalty a borrower must pay when a payment is made a stated number of days (usually 10-15) after the due date.

Lease  -  A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may use the real estate for a specified period of time and the amount of rent to be paid.

Leasehold Estate  -  A tenant's interest in or right to hold possession of a property.

Legal Description  -  A property description, recognized by law, using a government rectangular survey, metes and bounds, or a plat map to sufficiently locate and identify a property.

Lender's Fees  -  Fees paid to the lender to cover costs associated with processing, underwriting and closing of the loan.

Liabilities  -  A person's debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.

Liability Insurance  -  Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. See also homeowners insurance.

Lien  -  A legal claim against a property that must be paid off when the property is sold. A lien is created when you borrow money to purchase or refinance a home loan or and with obtain a home equity loan.

Lifetime Rate Cap  -  For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan.
line of credit.  An agreement by a lender to extend credit up to a certain amount for a certain time without the need for the borrower to file another application. See home equity line of credit.
 
Loan Amount  -  A sum of borrowed money (principal) that is generally repaid over time with interest.

Loan Commitment  -  A lender's agreement to advance money on specified terms after specified conditions are met. See commitment letter.
 
Loan Origination  -  The process by which a mortgage lender makes a home loan and records a mortgage against the borrower's real property as security for repayment of the loan.
 
Loan-To-Value (LTV) Ratio  -  The ratio of the total amount borrowed on a mortgage against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage on a home with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).

Lock-In  -  A written agreement in which the lender guarantees a specified loan program interest rate and points if a mortgage goes to closing within a set period of time.

Lock-in Period  -  The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.

M

Margin  -  For an adjustable-rate mortgage (ARM) or home equity line of credit, the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change. The margin is static and will not change during the life of the loan.

Maturity  -  The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable. At the maturity of a 30-year loan the principal balance will be paid in full.

Maximum Financing  -  The maximum amount a lender will lend on a specific loan program.

Maximum Rate  -  The maximum interest rate that can accrue on a variable rate loan.

Merged Credit Report  -  A credit report that contains information from more than one credit reporting agency. When the report is created, the information is compared for inconsistencies and duplicate entries. Any duplicates are combined to provide a summary of a your credit.
 
Minimum Payment  -  The minimum amount that must be paid monthly on an account. On the HELOC product, the minimum payment is interest only during the draw period. On the Fixed Rate Second products, the minimum payment is principal and interest.

Modification  -  The act of changing any of the terms of the mortgage.

Monthly Mortgage Insurance (MI) Payment  -  Portion of monthly payment that covers the cost of Private Mortgage Insurance.

Monthly Principal & Interest (P&I) Payment  -  Portion of monthly payment that covers the principal and interest due on the loan.

Monthly Taxes & Insurance (T&I) Payment  -  Portion of monthly payment that funds the escrow or impound account for taxes and insurance.

Monthly Payment  -  Payments to reduce the principal balance of a home loan made once a month.
 
Mortgage  -  A legal document that pledges a property to the lender as security for payment of a debt.
 
Mortgage Banker  -  A company that originates, sells and services mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker  -  An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

Mortgagee  -  The lender in a mortgage agreement.

Mortgage Insurance  -  A contract that insures the lender against loss caused by a borrower's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See private mortgage insurance (PMI).

Mortgage Insurance Premium (MIP)  - The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Mortgage Life Insurance - A type of term life insurance sometimes bought by borrowers. The amount of coverage decreases as the loan's principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. See credit life insurance.

Mortgagor  -  The borrower in a mortgage agreement.

Multi-Dwelling Units  -  Properties that provide separate housing units for more than one family, although they secure only a single mortgage. Typically a 2-4 unit property.

N

Negative Amortization  -  An increase in the outstanding balance of a mortgage that occurs when the monthly payment is not large enough to cover the interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

No Closing Cost Loan  -  A loan in which the fees the borrower(s) are not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

Net Worth  -  The value of all of a person's assets, including cash, minus all liabilities.

Non-Conforming Loan  -  See jumbo loan

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.

O

Original Principal Balance  -  The total amount of principal owed on a mortgage before any payments are made.

Origination Fee  -  A fee paid to a lender for processing a loan application, making a home loan, and recording a mortgage against the borrower's real property as security for repayment of the loan. The origination fee is stated in the form of points. One point is 1% of the mortgage amount (e.g., 1,000 on a $100,000 loan).
 
Owner Financing  -  A property purchase transaction in which the property seller provides all or part of the financing and takes back a security instrument.

P

Partial Payment  -  A payment that is not sufficient to cover the scheduled monthly principal and interest payment on a mortgage loan.

Payment Change Date  -  The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date and the borrower is notified 30 days prior as to the new rate.

Payoff  -  To pay the outstanding balance (principal and accrued interest) of a loan in full.

Periodic Payment Cap  -  A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period. See Cap.

Periodic Rate Cap  -  A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period. See Cap.

Personal Property  -  Any property that is not real property or is not permanently fixed to land. Cash, furniture, and cars are all examples of personal property.

PITI (Principal, Interest, Taxes, and Insurance)  -  Four potential components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that may be paid into an escrow account each month for property taxes and mortgage and hazard insurance.

PITI Reserves  -  A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Development  (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.

Point  -  A one-time charge by the lender for originating a loan. A point is 1% of the amount of the mortgage (e.g., 1,000 on a $100,000 loan).

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

Pre-Approval  -  A lender's conditional agreement to lend a specific amount on specific terms to a homebuyer. You will be asked for written documentation of your information. With pre-approval, you know your file has been reviewed by an underwriter and that you're approved (subject to satisfactory appraisal and no change in financial condition). You can shop with assurance, because you'll know up-front how large a loan you could qualify for.

Pre-Paid Items  -  Items required by lender to be paid at closing prior to the period they cover such as prorated property taxes, homeowners insurance and pre-paid interest.

Pre-Paid Interest  -  Mortgage interest that is paid in advance of when it is due.

Prepayment  -  Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

Prepayment Penalty  -  A fee that may be charged to a borrower who pays off a loan before it is due. Generally, a prepayment penalty is added to a loan in exchange for a discounted rate.

Pre-Qualification  -  The process of determining how much money a prospective home buyer might be eligible to borrow before he or she applies for a loan. When you pre-qualify, we ask you for information about your credit, assets and debts. Based on the information you provide and the loan type you want, the lender will calculate how large a loan you could qualify for. Pre-qualification is neither pre-approval nor a commitment to lend and requires you to submit additional information for review and approval.

Primary residence  -  The place someone lives most of the time.

Prime Rate  -  The interest rate that banks charge on short-term loans to its most creditworthy customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal  -  The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance  -  The outstanding balance on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.

Principal Payment  -  Portion of your monthly payment that reduces the remaining balance of a home loan.

Private Mortgage Insurance (PMI)  -  Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80%.

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

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

Purchase Money Transaction  -  A loan used in part as payment for a purchase. A loan that is used to buy a home is called a purchase money mortgage.

Purchase Price  -  The total amount paid for a home.

Q

Qualifying Ratios  -  Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
 
Quitclaim Deed  -  A deed that transfers, without warranty of ownership, whatever interest or title a grantor may have at the time the conveyance is made.

R

Rate Reduction Option  -  A fixed-rate mortgage that includes a provision that gives the borrower an option to reduce the interest rate (without refinancing) at a later date. It is similar to a prearranged refinancing agreement, except that it does not require re-qualifying.

Rate Lock  -  A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time. See lock-in.

Real Estate Agent  -  A person who is normally licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction.

Real Estate Settlement Procedures Act (RESPA)  -  A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred.

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(r)  -  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.

Rescission  -  The act of cancellation or annulment of a transaction or contract by the operation of a law. Borrowers usually have the option to cancel certain credit transactions, including a refinance or home equity transaction, within three business days after consummation (when the consumer becomes contractually obligated by, for example, signing the loan documents).

Recorder  -  The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

Recording  -  The noting in a book of public record of the terms of a legal document affecting title to real property, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage.

Refinance Transaction  -  The process of paying off one loan with the proceeds from a new loan, typically using the same property as security for the new loan.

Remaining Balance  -  The amount of principal that has not yet been repaid. See principal balance.

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

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.

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Second Mortgage  -  A mortgage that has a lien position subordinate to the first mortgage.

Secondary Mortgage Market  -  An informal market where lenders and investors buy and sell existing mortgages. Government-sponsored entities and private investors buy mortgages from lenders who use the proceeds to make additional loans.

Secured Loan  -  A loan that is backed by collateral. If the borrower defaults, the lender can sell the collateral to satisfy the debt.

Security  -  The property that will be pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.

Security Interest  -  An interest a lender takes in the borrower's property to assure repayment of a debt. If the borrower defaults, the lender can sell the collateral to satisfy the debt.

Seller Take-Back  -  An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See owner financing.

Servicer  -  An organization that collects principal and interest payments from borrowers and manages borrowers' tax and insurance escrow accounts. A mortgage banker is often paid a fee to service mortgages that have been purchased by an investor in the secondary mortgage market.

Servicing  -  The collection of principal and interest payments from borrowers and management of borrowers' tax and insurance escrow accounts.

Settlement  - See Closing.

Settlement Sheet  -  See HUD-1 settlement statement.

Subordinate Financing  -  Any mortgage or other lien that has a priority that is lower than that of the first mortgage. The subordinate loan has a claim to payment in a foreclosure only after the first mortgage is paid.

Survey  -  A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Sweat Equity  -  Contribution to the construction or rehabilitation of a property in the form of labor or services performed personally by the owner.

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Tenancy By The Entirety  -  A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. One spouse dies the property goes to the other spouse. Contrast with tenancy in common.

Tenancy In Common  -  A type of co-ownership of property without right of survivorship.  Each owner holds a specific percentage interest in the property.    If one property owner dies, his interest passes through his estate to his heirs rather than to the other owner(s).  Contrast with tenancy by the entirety and with joint tenancy.

Third Party Fees  -  Fees collected by lender for services provided by other companies, such as an appraiser.

Third-Party Origination  -  A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the home loan. See mortgage broker.

Title  -  A legal document evidencing a person's right to or ownership of a property.
 
Title Company  -  A company that specializes in examining and insuring titles to real estate.

Title Insurance  -  Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search  -  A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Total Monthly Payment  -  See Monthly PITI payment.

Transaction Fee  -  A fee charged each time the borrower draws on the credit line.

Transfer of ownership  -  Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.

Transfer Tax  -  State or local tax payable when title to a property passes from one owner to another.
 
Truth-in-Lending  -  A federal law that requires lenders to fully disclose, in writing, the terms and conditions of credit, such as a mortgage, including the annual percentage rate (APR) and other charges.

Two- to-Four Family Property  -  A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

Trustee  -  A fiduciary who holds or controls property for the benefit of another.

U

Underwriting  -  The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

V

VA Mortgage  -  A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

Variable Rate  -  An interest rate that changes periodically in relation to an index. Payments may increase or decrease per the terms of the loan agreement or note.

Department of Veterans Affairs (VA)  -  An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

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Y

Year-End Statement  -  A report sent to the borrower each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

Z