Glossary

Abstract or title search The process of reviewing all publicly recorded transactions to determine whether any title defects exist that could interfere with a clear transfer of property ownership.

Abstract The process of reviewing all publicly recorded transactions to determine whether any title defects exist that could interfere with a clear transfer of property ownership.

Accelerated cost recovery system A tax calculation that provides greater depreciation in the early years of ownership.

Accelerated depreciation A bookkeeping method that provides faster property depreciation in the early years of ownership.

Acceleration clause The seller's written approval of a buyer's offer.

Addendum An addition or change to an existing contract between two (2) or more parties.

Additional principal payment Additional funds outside of the scheduled loan payment to reduce the principal balance and shorten the term of the loan

Adjustable rate mortgage (ARM) A home loan with an interest rate that periodically adjusts to reflect changes in a specified financial index.

Adjustment period The amount of time between interest rate adjustments in an adjustable-rate mortgage.

Agency closing When a lender uses a title company or other firm as an agent to complete a loan.

Agency disclosure Most states require agents who act for both buyers or sellers to disclose who they are working for in the transaction

Agreement of sale A legal document the buyer and seller approve detailing the price & terms of the transaction.

Alienation clause A loan provision requiring the borrower to pay the balance of the loan in a lump sum if the property is sold or transferred.

Alternative mortgage A home loan program that does not conform to standard fixed-rate mortgage terms.

Amortization The process of paying the principal and interest on a loan through regularly scheduled payments.

Amortization tables Mathematical tables used to calculate a borrower's monthly payment.

Amortization term The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Annual mortgagor statement An annual statement to borrowers detailing the remaining principal balance and amounts paid for taxes and interest throughout the year.

Annuity The payment of a fixed sum at regular intervals.

Application fee An application fee is charged by some lenders and may include charges for items such as property appraisal and/or a credit report unless those fees are reported separately.

Appraisal A professional opinion of the value of a property by a licensed real estate appraiser.

Appraisal fee The fee that a professional real estate appraiser charges to appraise, or estimate the market value of, a property.

Appraisal report A written report on the value of a property based on recent sales of comparable property in the area.

Appraised value A professional opinion of the current market value of a property.

Appreciation An increase in the value of a home or other property.

APR (annual percentage rate) A measure of interest that expresses the cost of a mortgage as a yearly rate on the loan balance. The APR assumes the loan is held for its full term. For adjustable-rate loans, the APR assumes the loan's index doesn't change from its initial value.

ARM (adjustable rate mortgage) A home loan with an interest rate that periodically adjusts to reflect changes in a specified financial index.

ARM index A publicly published number used as the basis for adjusting the interest rates of adjustable rate loans (ARM).

Assessed value A tax assessor's determination of the value of a home in order to calculate a tax base.

Assessment The estimated value of a piece of real estate or a special levy placed in addition to taxes.

Assets Items of value which include cash, real estate, securities, and investments.

Assignment The transfer of rights to pay a debt from one party to another, with the original party remaining liable for the debt if the second party defaults.

Assignor A person who transfers rights and interests of a property.

Assumable mortgage A mortgage that can be transferred to another borrower.

Assumption fee A fee the lender charges to process new records for a buyer who assumes an existing loan.

Back title letter A letter that a title insurance company gives to an attorney who then examines the title for insurance purposes.

Back-end ratio A calculation used by lenders to compare a borrower's total debt to their gross monthly income.

Balance sheet A statement providing the assets, liabilities and net worth of an individual.

Balloon loan A mortgage loan where the monthly payments are not large enough to repay the loan by the end of the term resulting in a lump sum due on the final payment date.

Bankruptcy A proceeding where an insolvent debtor (person or corporation) can obtain relief from payment of certain obligations.

Base loan amount The loan amount upon which payments are based. If the borrower chooses to finance closing costs or other fees these costs will be added to the base loan amount and payments adjusted to reflect the larger loan balance.

Basis point A basis point is one one-hundredth of one percentage point. For example, the difference between a home loan at 5.25 percent and one at 5.37 percent is 12 basis points.

Before-tax income Total income before any taxes are deducted.

Bill of sale A legal document transferring ownership of personal property.

Binder A report detailing the condition of a property's title. Usually issued by a title insurance company to provide guidelines for issuing a title insurance policy.

Biweekly mortgage A mortgage that requires payments every two weeks and helps repay the loan over a shorter term.

Blanket mortgage A mortgage that covers more than one property owned by the same borrower.

Book value The value of a property based on its cost plus any additions, minus depreciation

Break-even point The point in which the owner's rental income matches expenses and debt.

Bridge loan A short-term loan for borrowers who need more time to find permanent financing.

Broker Anyone who acts as a go-between between a buyer and seller. For example, a real estate broker is licensed to handle property transactions and negotiate between a buyer and seller. A mortgage broker acts as a go-between with the lender and the borrower.

Buydown mortgage A home loan program where the lender receives a premium as an enticement to reduce the interest rate during the early years of the mortgage.

Call option A loan clause allowing a lender to ask for repayment of the entire balance at any time.

Cap A limit on the amount the interest rate or monthly payment can increase in an adjustable rate mortgage.

Capitalization The rate of return estimated from the net income of a piece of property, expressed as a percentage.

Caps (Interest Rate Caps) Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage which may change per year and/or the life of the loan.

Carryback financing Financing in which a seller agrees to hold back a note for a set amount of the sales price.

Cash flow The amount of cash a rental property investor receives after deducting operating expenses and loan payments from gross income.

Cash-out refinance The refinancing of a mortgage in which the money received from the new loan is greater than the amount due on the old loan.

Cashier's check A check the bank draws on itself rather than on a depositor's account.

Certificate of deposit index (CODI) An index based on interest rates of six-month CDs. Commonly used to determine interest rates for some adjustable rate mortgages.

Certificate of eligibility A document issued by the Veterans Administration that verifies the eligibility of a veteran for a loan program.

Certificate of occupancy (CO) A document stating that a home or other building has met all building codes and is suitable for habitation.

Certificate of Reasonable Value (CRV) An appraisal issued by the Veterans Administration showing a property's current market value

Certificate of veteran status The document given to veterans or reservists who have served 90 days of continuous active duty (including training time).

Chain of title The official record that details the ownership history of a piece of property.

Clear title A title to property that does not have liens, defects or other legal encumbrances.

Closing The final procedure in which loan and title documents are signed between the buyer and seller and their respective representation.

Closing costs Expenses related to the sale of real estate including loan, title, and appraisal fees. These costs are above and beyond the price of the property and are paid at closing. Most closing costs are one-time expenses however a few are recurring.

Closing statement A document which details the final financial details of a property sale between a buyer and seller and the costs paid by each party.

Cloud on title An invalid encumbrance on real property.

Co-signer A second party who also signs a promissory note and takes responsibility for the debt.

COFI Index (Cost of Funds Index) This index reflects the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada. The COFI index is a popular index used for determining interest rates on adjustable rate mortgages.

Commitment A promise by a lender to make a loan with specific terms for a specified period

Commitment fee A fee charged by the lender to guarantee a specific set of loan terms to be honored at some future date.

Comparables Properties used as comparisons to determine the value of a certain property

Compound interest The interest paid on the principal balance of a mortgage plus accrued interest

Conditional commitment A promise by a lender to make a loan if the borrower meets certain conditions

Conditional sale A contract for property sale stating that the title will remain invested in the seller until all the conditions of the contract have been fulfilled.

Conforming loan A home loan that meets qualifications to be purchased by Fannie Mae or Freddie Mac

Construction documents Drawings and specifications from an architect and/or engineer providing detailed requirements for the construction of a project.

Construction loan A short term loan for construction. Lenders usually disburse funds from construction loans in draws according to completion of defined stages throughout the construction process

Construction-to-permanent loan A construction loan that is converted to a longer term traditional mortgage after construction has been completed

Conventional loan A long term loan a lender makes for the purchase of a home

Convertible adjustable-rate mortgage A mortgage which starts as an adjustable rate loan, but contains a provision that allows the borrower to convert the loan to a fixed-rate mortgage during a specified period of time.

Cooperative mortgage Any loan related to a cooperative residential project.

Courier fee Fee charged at closing to cover the delivery of documents between lenders, escrow companies, and other third parties during a real estate transaction.

Credit history A file detailing an individual's current and past debt payments and financial obligations.

Credit rating The degree of creditworthiness assigned to a person based on their credit history and financial status

Credit report A detailed account of an individual's credit, employment, and residence history. A lender uses this report to determine a loan applicant's creditworthiness. The three largest credit bureaus are Trans Union, Equifax and Experian.

Credit repository A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This score represents the answer from a mathematical formula that assigns numerical values to various pieces of information in a credit report.

Credit Score A credit score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit score is the Fair Isaac or FICO score. This score represents the answer from a mathematical formula that assigns numerical values to various pieces of information in a credit report.

Debt Any amount one person owes to another

Debt-to-Income Ratio The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Deed The legal document that transfers property ownership from the seller to the buyer.

Deed of trust A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on the loan.

Default The failure to fulfill a duty or discharge an obligation - such as making monthly mortgage payments

Delinquency Failure to make mortgage payments on time. Severe delinquency can lead to foreclosure

Delinquent mortgage A mortgage that involves a borrower who is behind on payments. If the borrower cannot bring the payments up to date within a specified number of days the lender may begin foreclosure proceedings.

Department of Veterans Affairs (VA) An independent agency of the federal government which guarantees long-term, low or no down payment mortgages to eligible veterans.

Deposit Funds provided by the buyer with an offer to purchase property. Also referred to as "earnest money".

Disclosure A statement to a potential buyer listing information relevant to a piece of property, such as the presence of radon or lead paint.

Discount points Fees charged by a lender to provide a lower interest rate. One discount point equals one percent (1%) of the loan amount.

Document needs list A list of documents required by a lender from a potential borrower submitting a loan application. Documents requested can range from paycheck stubs to bank statements.

Documentation Preparation Fee A fee charged by lenders, brokers and/or settlement agents to prepare the necessary documents for closing

Down payment A payment made to contractors, subcontractors, home builders or suppliers from the proceeds of a construction loan.

Due on Sale clause Standard language in a mortgage that states the loan must be repaid upon sale.

Earnest money Money a buyer provides with an offer to purchase a property. Also called a deposit.

Earthquake insurance An insurance policy that provides coverage against damage to a home from an earthquake.

Easement A right given to a third party to use a portion of the property for certain purposes, such as power lines or sewage mains.

Encumbrance Any right or interest in property interfering with its use or transfer.

End loan The conversion from a construction loan to permanent financing.

Entitlement The VA home loan benefit is called an entitlement and often referred to as eligibility.

Equal Credit Opportunity Act (ECOA) Federal law that prohibits a lender or other creditor from refusing to grant credit based on the applicant's sex, marital status, race, religion, national origin or age.

Equifax One of the main credit-reporting bureaus.

Equity The value of a property after existing liens are deducted.

Errors and omissions insurance A policy that insures against mistakes made by a builder or architect.

Escrow A neutral third party holds documents and money for a real estate transaction and ensures that all conditions of a sale are met before any disbursement of funds or articles.

Escrow account An account that a mortgage lender or mortgage servicing company establishes to hold funds for the payment of expenses such as homeowners insurance and property taxes. Also commonly referred to as an impound account.

Escrow agent A neutral third party who ensures that all conditions of a real estate transaction are met before any transfer of funds or property is recorded.

Escrow closing Escrow closes when all conditions of a real estate transaction are met and the title of the property is transferred to the buyer.

Escrow company A firm that acts as a neutral third party to ensure that all conditions established by the buyer, seller and lender in a real estate transaction are met.

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 Funds that a mortgage servicer withdraws from a borrower's escrow account to pay property taxes and insurance.

Estate The total assets of a person, including real property, at the time of death.

Estimated closing costs An estimate of expenses related to the sale of real estate including title and appraisal fees.

Estimated hazard insurance An estimate of hazard insurance, also known as homeowners insurance, to cover physical risks such as fire and wind damage.

Estimated property taxes An estimate of property taxes payable on the property according to state and county tax rates. The amount due is based on the property's assessed value which is based on the most recent sale price plus any assessment updates.

Examination of title An inspection by a title company of public records and other documents to determine the chain of ownership of a property.

Executed contract A contract in which all parties have fulfilled their promises.

Fair Credit Reporting Act Federal law designed to regulate procedures and prevent old or inaccurate information from staying in consumer credit files. This act provides individuals the right to inspect their own credit files, although the credit bureau may charge a fee.

Fair Housing Act Federal law making it illegal to refuse to rent or sell to anyone based on race, color, religion, sex, national origin, family status or disability.

Fannie Mae The official name of the Federal National Mortgage Association - it is a congressionally chartered, shareholder-owned company that buys mortgages from lenders and resells them as securities on the secondary mortgage market.

Farmer's Home Administration (FMHA) A U.S. Department of Agriculture agency that provides credit to farmers and rural residents.

Federal Home Loan Mortgage Corporation (FHLMC) The Federal Home Loan Mortgage Corporation is commonly known as Freddie Mac. This corporation buys mortgages from lending institutions, pools them with other loans and sells shares to investors.

Federal Housing Administration (FHA) This government agency provides low-rate mortgages to buyers who make a down payment as small as 3 percent.

Federal National Mortgage Association (FNMA) also know as "Fannie Mae" A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA.

FHA loans Mortgages that are insured by the Federal Housing Administration (FHA). The FHA operates loan plans for investors and purchasers of rural property, and provides low-rate mortgages to buyers who make a down payment as small as 3 percent.

FHA Mortgage Insurance Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with the Federal Housing Administration (FHA). In addition to the one time fee, the FHA also requires an additional insurance fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

Firm commitment A written promise made by a lender to loan money for the purchase of property.

First mortgage The primary mortgage on a property. As the most senior voluntary lien, the first mortgage takes priority over all other voluntary liens.

Fixed time The specific weeks in a year that an owner of a timeshare arrangement has access to accommodations.

Fixed-rate mortgage A home loan with an interest rate that will remain at a specific rate for the term of the loan.

Flood certification The process of determining whether a property is located within a known flood zone.

Flood insurance Insurance coverage that is required in designated flood areas.

For Sale By Owner (FSBO) A selling method whereas the owner of the property acts as the selling agent and handles the sales process directly with the buyer or buyer's agent. This is most commonly done y owners in order to avoid having to pay a listing commission.

Freddie Mac A congressionally chartered institution that buys mortgages from lenders and resells them as securities on the secondary mortgage market. Freddie Mac is the common name for the Federal Home Loan Mortgage Corporation (FHLMC).

Front-end ratio A lender calculation that compares a borrower's monthly housing expense (principal, interest, taxes, and insurance) to gross monthly income.

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.

Gift Funds a buyer receives from a relative or other source. Mortgage lenders usually require a gift letter from the giver of this "gift money" stating that the money does not have to be repaid.

Good faith estimate An estimate from an mortgage lender or broker showing the all the costs associated with obtaining a home loan including loan processing, title and inspection fees.

Government National Mortgage Association (GNMA) This government agency buys home loans from lenders, pools them with other loans and sells shares to investors. However, unlike Fannie Mae and Freddie Mac, Ginnie Mae only purchases loans backed by the federal government. (Commonly known as Ginnie Mae)

Grace period A specified amount of time in which a borrower may make a loan payment after its due date without penalty.

Graduated Payment Mortgage A mortgage that requires a borrower to make larger monthly payments over the term of the loan. Payments are lower for the first few years but gradually rise until year three or five, when payments become fixed.

Gross income The total household income before taxes or expenses are subtracted.

Growing-equity mortgage A fixed rate mortgage that increases payments over a specific period of time. The extra funds are applied to the principal

Hazard insurance Hazard insurance provides coverage for damage from items as fire and wind. Mortgage lenders require coverage for at least the replacement value of the home. (Also known as homeowner's insurance or fire insurance)

High-rise Any building taller than six stories.

Home equity line An open ended line of credit based on a homeowner's accumulated equity.

Home equity loan A loan that allows owners to borrow against the equity in their homes however unlike a home equity line this product provides a defined amount at closing without an option to redraw in the future.

Home inspection An examination of a home's condition by a licensed inspector prior to purchase.

Home inspector A licensed professional who evaluates the structural soundness and operating systems of a residence.

Home price The price agreed upon by a buyer and seller, usually based on an appraisal of the house's market value.

Homeowner's insurance Insurance that includes coverage for any damages that may affect the value of a house, in addition to personal liability and theft coverage.

Homeowners Association (HOA) A group that governs a subdivision, condominium or planned community. The association collects monthly fees from all owners to pay for common area maintenance, handle legal and safety issues and enforce the covenants, conditions, and restrictions set by the developer.

Homeowners Association dues Monthly payments due to a homeowners' association to be used for maintenance and communal expenses. Condominiums, townhouse complexes, and planned unit developments (PUDs) may require monthly homeowners' association dues.

Homestead A parcel of land used by the owner as a primary residence.

Housing expense ratio The percentage of gross monthly income devoted to housing costs.

HUD Abbreviation of (the U.S. Department of) Housing and Urban Development. HUD is a federal agency that oversees the Federal Housing Administration (FHA) and a variety of housing and community development programs.

HUD-1 Uniform Settlement Statement A closing statement or settlement sheet that outlines all closing costs on a real estate transaction or refinancing for the buyer and seller.

Impounds A portion of the monthly mortgage payment that is placed in an account and used to pay for hazard insurance, property taxes and private mortgage insurance( if applicable).

Income property Property that is not occupied by the owner but is used to generate income.

Index Financial tables used by lenders to calculate interest rates on adjustable mortgages. Commonly used indexes are the Prime Rate, the LIBOR and Treasury bills.

Indexed Rate The sum of the published index plus a margin. For example if the index were 5% and the margin 2.75%, the "fully indexed rate" would be 7.75%.

Initial interest rate The original interest rate on an adjustable rate mortgage. This rate may be subject to various adjustment at points throughout the mortgage.

Initial rate cap A specific limit defined by some adjustable rate loans (ARMs) for the maximum amount the interest rate may increase at the expiration of the initial interest rate.

Initial rate duration Most adjustable rate loans (ARMs) offer an initial interest rate below the current market rate. This initial or "teaser" rate expires after a period called the initial rate duration, which may last months or years.

Inspection fee The fee paid to a licensed property inspector in order to determine the present physical condition of the property.

Inspection report A licensed property inspectors; written report of the property's condition.

Insurance binder A temporary insurance arrangement usually put in force until a permanent policy can be obtained.

Insured Mortgage A mortgage that is insured (guaranteed) by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI).

Interest accrual rate The rate at which interest accrues on a mortgage.

Interest paid over life of loan The total amount paid to the lender for the use of money during the time the money is borrowed.

Interest rate The fee, expressed as a percentage, charged for a loan.

Interest rate buy-down plans For buyers with limited cash reserves some sellers are willing to advance funds from the sale of the home to buy down the interest rate and reduce the buyer's monthly obligation.

Interest rate cap The maximum interest rate charge allowed on the monthly payment of an adjustable rate mortgage during an adjustment period.

Interest rate ceiling The highest interest rate a lender can charge for an adjustable rate mortgage.

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

Interest only loan The borrower pays only the interest that accrues on the loan balance each month. Because each payment goes toward interest, the Interim financingoutstanding balance of the loan does not decline with each payment.

Interim financing Short-term financing used by sellers to bridge the gap between the sale of one house and the purchase of another (also known as bridge or swing loans). A construction loan is also a form of interim financing.

Investment property Real estate that generates income, such as an apartment building or a rental home.

Joint liability The responsibility of two or more people to fulfill the terms of a home loan or other financial debt.

Joint tenancy Ownership by two or more people that gives equal shares to a piece of property. Rights pass to the surviving owner or owners.

Jumbo loan Loans that exceed the conforming limits set annually by Fannie Mae & Freddie Mac.

Junior mortgage A loan that is subordinate to the primary loan.

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Late charge A fee imposed by a lender when the borrower does not make a payment on time.

Late payment A payment a lender receives after the due date has passed.

Lease-Purchase The lease purchase contract sets the closing date and provides remedies to the seller if the buyer defaults. (a type of delayed closing)

Leasehold The limited interest in a property held by a tenant; primarily the right to inhabit it for a specified period of time. At the end of the lease, the property reverts to the owner or landlord.

Legal blemish Blemishes on a piece of property such as a zoning violation or fraudulent title claim.

Legal description A specific way of identifying and locating a piece of real estate that is acceptable to a court.

Lender A bank, savings institution or mortgage company that offers home loans.

Liabilities A borrower's debts and financial obligations.

Liability insurance An insurance policy that protects owners against claims of negligence, personal injury or property damage.

LIBOR Acronym for "London Interbank Offered Rate." An index used to determine interest rate changes for adjustable rate mortgages. Very popular index for interest only mortgage programs.

Lien A claim laid by one person or company on the property of another as security for money owed.

Life cap Limits the amount a loan's interest rate can change during the mortgage term. For example, if the rate on an adjustable-rate mortgage begins at 4 percent and has a life cap of 6 percentage points, it can not go over 10 percent.

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

Lifetime Rate Cap A maximum interest rate or "ceiling" that may not be exceeded under any circumstances over the entire life of the loan.

Liquid assets Cash and all other assets that can be converted to cash relatively quickly. Liquid assets can include money in savings and checking accounts, money-market accounts and most CD's.

Loan application A document that details a borrower's income, debt and other obligations to determine credit worthiness. Also includes information on the subject property.

Loan application fee A fee charged by lenders to cover expenses incidental to reviewing a loan application.

Loan commitment A promise by a lender or other financial institution to make or insure a loan for a specified amount and on specific terms.

Loan officer An official lending institution representative who is empowered to act on behalf of the lender within certain limits.

Loan origination fee A fee charged by lenders to cover the direct costs of arranging the loan.

Loan term The time set by a lender for a buyer to pay a mortgage. Most conforming loans have 30 or 15-year terms.

Loan-to-value ratio (LTV) The ratio of the total loan amount to the value of the property. For lending purposes, the property value is equal to the purchase price or the appraised value, whichever is lower.

Lock-in A lender's commitment to a borrower to guarantee (or "lock in") a specific interest rate for a limited amount of time.

Lock-in period A period of time during which the borrower is guaranteed an agreed-upon interest rate, even if market rates rise. The longer the period, the higher the cost (in points) to the borrower.

Low-documentation loan A home loan that requires only minimal verification of income and assets.

LTV (loan-to-value ratio) The ratio of the total loan amount to the value of the property. For lending purposes, the property value is equal to the purchase price or the appraised value, whichever is lower.

Maintenance fee The monthly assessment paid by homeowners' association members for the repair and maintenance of common areas.

Margin A percentage added to the index and fixed for the life of the loan. When the initial interest rate on an adjustable-rate loan has expired, the interest rate moves toward the sum of its index plus a margin.

Market value The price a piece of property sells for at a particular point in time.

Merged credit report A report that draws information from the three (3) main credit-reporting agencies incvluding: Equifax, Experian and Trans Union.

Modification A change in the terms of a loan agreement.

Modified annual percentage rate (APR) The modified APR is an index of loan cost based on the standard APR and adjusted for the time the borrower expects to hold the loan.

Monthly association dues A payment due monthly to a homeowners' association for maintenance and communal expenses.

Mortgage A sum of money borrowed to purchase a home using the property as collateral. A mortgage is the legal document that pledges the property as collateral for a loan.

Mortgage acceleration clause A clause that allows a mortgage lender to demand repayment of the entire loan balance in a lump sum under certain circumstances, such as when the home is sold, title is changed, the loan is refinanced or the borrower defaults on a scheduled payment.

Mortgage banker A company that provides home loans using its own money. The loans are usually sold to investors such as insurance companies and Fannie Mae.

Mortgage broker An individual that matches lenders with prospective borrowers who meet the criteria of lenders the broker is approved to deal with.

Mortgage insurance Required by lenders on some loans to protect lenders from a possible default. Most conventional loans with down payments or home equity percentages that are less than 20 percent of the home value require private mortgage insurance (PMI).

Mortgage Interest deduction The tax write-off that the Internal Revenue Service allows most owners to claim for annual interest payments made on real estate loans.

Mortgagee A bank or other financial institution that lends money to the borrower. The borrower is considered the mortgagor.

Mortgagor The person who borrows money to purchase a house. The lender is called the mortgagee.

Negative amortization Occurs when a borrower's monthly payment is too small to cover both the principal and interest of a loan, so the outstanding balance of the loan actually grows larger with each payment. Many adjustable rate mortgages are susceptible to this.

Net cash flow Income from an investment property after expenses such as principal, interest, taxes and insurance are subtracted

Net worth The worth of a person or company based on the difference between total assets and liabilities.

No-cash-out refinance When the amount of the new mortgage covers the remaining balance of the first loan plus closing costs and any liens, and yields no more than 1 percent of the new loan's principal in cash.

Non-assumption clause A loan provision that prohibits the transfer of a mortgage to another borrower without lender approval.

Non-conforming loan A non-conforming loan is any loan that doesn't meet the qualifications or is too large to be purchased by Fannie Mae or Freddie Mac.

Non-liquid asset An asset such as a house that is not easily turned into cash.

Nonrecurring closing costs Fees that are only payable once such as appraisal, loan points, credit report, title insurance and home inspection.

Note A legal document that requires a borrower to repay a mortgage at a certain interest rate over a specified period of time.

Note rate The interest rate specified in a mortgage note.

One-year Adjustable Rate Mortgage A mortgage whose interest rate changes yearly. The rate is usually based on movements of a published index plus a specified margin.

Option A situation in which a buyer puts down money for the right to purchase a piece of real estate within a set time period but does not have an obligation to buy.

Option Arm Loan A home loan where the borrower has multiple payment options each month.

Original principal balance The amount of principal owed on a loan before a borrower makes any payments. Origination fee

Origination fee A fee charged by most mortgage lenders to cover costs of arranging the loan.

Owner financing A transaction in which the seller of a property agrees to finance all or part of the purchase.

Payment cap A limit on the amount a monthly payment can increase on an adjustable rate mortgage.

Payment Change Date The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date

Per-diem interest Interest charged or accrued daily.

Periodic Payment Cap limit on the amount that payments can increase or decrease during any single 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.

PITI (principal, interest, taxes, and insurance) A payment amount calculated by a mortgage lender to include the total payment of all principal, interest, taxes and insurance due monthly.

Pledged Account Mortgage (PAM) A type of mortgage that is tied to a pledged savings account and this fund (plus earned interest) is gradually used to reduce mortgage payments.

Point Fees charged by a lender to provide a lower interest rate. One point equals one percent (1%) of the loan amount. Also referred to as a discount point.

Pre-approval A thorough assessment made by a lender of a potential borrower's ability to pay for a home and a confirmation of the amount to be borrowed. The completion of a loan application is necessary to close the loan.

Pre-approval letter A letter from a lender that states the amount of money a potential buyer can obtain.

Prepaid expenses Expenses including taxes, insurance, and assessments that are paid before the due date.

Prepaid fees Funds collected by the lender from the borrower to pay certain recurring items in advance, including interest, property taxes, hazard insurance and, if applicable, private mortgage insurance (PMI).

Prepaid interest Interest paid before it is due.

Prepayment penalty A penalty that a lender may impose on a borrower who pays a loan off before its expected end date.

Prequalification A lender's preliminary assessment of a buyer's ability to pay for a home and an estimate of how much the buyer may borrow.

Principal The amount of money originally borrowed in a mortgage, minus any payments made subsequently.

Principal paid over life of loan The sum of scheduled principal payments calculated by the lender to equal the face amount of the loan.

Principle of conformity The idea that a house will more likely appreciate in value if its size, age, condition and style are similar to other houses in the neighborhood.

Private mortgage insurance (PMI) A form of insurance required by a lender when the borrower's down payment or home equity percentage is less than 20 percent of the home value.

Processing fee A fee charged by some lenders for gathering information necessary to process the loan.

Property tax Tax paid on privately owned property. Property taxes are usually paid semiannually, or monthly if the lender requires. The amount is based on local tax rates and assessed property value.

Purchase-money mortgage (PMM) A mortgage obtained by a borrower as partial payment for a property.

Qualifying ratio A ratio calculated by a lender to determine how much a potential buyer can borrow.

Quitclaim deed A document that releases a party from any interest in a piece of real estate.

Rate cap The maximum interest rate allowed on the monthly payment of an adjustable rate mortgage during an adjustment period.

Rate lock A lender's commitment to a borrower to guarantee (or "lock in") a specific interest rate for a limited amount of time.

Rate-improvement mortgage A loan with a clause that entitles a borrower to a one-time interest rate cut without going through refinancing.

Recording fee A fee charged by real estate agents for conveying the sale of a piece of property into the public record.

Refinancing The process of replacing an older mortgage with a new mortgage.

Regulation Z A federal code issued under the Truth in Lending Act that requires a borrower be advised in writing of all costs associated with the credit portion of a financial transaction.

Rehabilitation mortgage A mortgage that provides for the costs of repairing and improving a resale home or building.

Remaining balance The amount of unpaid principal on a home loan.

Remaining term The original loan term minus the number of payments made.

Rescission The cancellation of a contract by law or consent from the parties involved.

Reverse mortgage A special type of loan available to equity-rich, older home owners. Repayment is not necessary until the borrower sells the property. Many downsides exist to these loans.

Right to rescission A provision in the federal Truth in Lending Act that allows borrowers to cancel certain kinds of loans within three (3) days of signing.

Sales contract A contract signed by the buyer and seller detailing the terms of a property sale.

Second mortgage A second loan placed upon a piece of property.

Seller carry-back An agreement where the seller provides financing for a home purchase.

Seller financing The seller allows the borrower to use a portion of the equity in the property to finance the purchase.

Settlement or closing fees Fees paid to the escrow agent (often a title insurance company) for carrying out the written instructions of the agreement between buyer and seller and/or borrower and lender.

Settlement statement A closing statement or settlement sheet that outlines all closing costs on a real estate transaction or refinancing for the buyer and seller.

Shared-appreciation mortgage A loan that allows a lender or other party to share in the borrower's profits when the home is sold.

Shared-equity transaction A transaction in which two buyers purchase a property, one as a resident co-owner and the other as an investor co-owner.

Step-rate mortgage loan that allows a gradual increase in the interest rate during the first few years of the loan.

Subordinate loan A second or third mortgage.

Subsequent rate adjustments The interest rate for adjustable rate loans (ARMs) adjusts at regular intervals. This adjustment period could in some cases differ from the initial interest rate duration period.

Subsequent rate cap A specific limit defined by most adjustable rate loans (ARMs) for the maximum amount the interest rate may increase at each regularly scheduled interest rate adjstment date. This limit may differ from the initial rate cap.

Super jumbo mortgage A mortgage that is over $650,000 or $1,000,000, depending on the lender.

Survey A precise measurement of a piece of property by a licensed surveyor.

Sweat equity The non-cash value added to a piece of property by the owner, such as do-it-yourself home improvements.

Tax lien A lien placed against a property for nonpayment of taxes (property and/or personal) Tax service fee

Tax service fee A fee collected to set up third-party monitoring of the borrower's property tax payments. This is done to ensure that the payments are made on time and to prevent tax liens from occurring to the detriment of the lender.

Teaser rate A low, short-term interest rate offered on a mortgage to entice the borrower.

Tenancy by the entirety Ownership by a husband and wife in which they together hold title to the whole property with right of survivorship.

Tenancy in common A form of ownership in which two or more owners hold an undivided (though not necessarily equal) interest in the property, with no right of survivorship.

Title The legal document conferring ownership of a piece of real estate.

Title company A firm that ensures that the property title is clear and provides title insurance.

Title Exam An examination of the public record to determine that the seller is the legal owner and there are no encumbrances (such as claims or liens) affecting the property.

Title insurance A policy issued to lenders and buyers to protect against loss due to disputed property ownership at a later date.

Title insurance binder A title insurance company's written commitment to insure title to the property subject to the conditions and exclusions shown on the binder.

Title risk Possible impediments to the transfer of a title from one owner to another.

Title search The process of reviewing all recorded transactions in the public record to determine whether any title defects exist that could interfere with the clear transfer of ownership of the property.

Total expense ratio The percentage of monthly debt obligations relative to gross monthly income.

Total lender fees Fees required by the lender to obtain the loan, apart from other fees associated with transferring a property between buyer and seller.

Total loan amount The base loan amount plus any financed closing costs.

Total monthly housing costs The sum of principal, interest, property taxes and, if applicable, private mortgage insurance (PMI) and either hazard insurance or homeowners' association dues.

Total of all payments The total cost of the loan including repayment of the principal amount and the sum of monthly interest payments.

Townhouse An attached home that is not a condominium.

Trading down Buying a home that is less expensive than the one's current house.

Trading up Buying a home that is more expensive than one's current house.

Transfer tax An assessment by state or local authorities at the time a piece of property changes hands.

Treasury Index An index used to determine interest rate changes for adjustable rate mortgages.

Two-step mortgage An adjustable mortgage with two interest rates: one for the first five or seven years of the loan, and the other for the remainder of the loan term.

U.S. Department of Housing and Urban Development Also known as HUD. This federal agency oversees the Federal Housing Administration and a variety of housing and community development programs.

Underwriting The process in which lenders evaluate the risks posed by a particular borrower and set appropriate conditions for the loan.

Underwriting fee A fee charged by mortgage lenders to verify information on the loan application and make a final decision about whether or not to approve the loan.

Unrecorded deed A deed that transfers ownership from one party to another without being officially recorded.

VA (Veterans Administration) The Veterans Administration assists veterans with purchasing a home without a down payment.

VA loan A loan through the Veterans Administration program, which allows most veterans to purchase a house without a down payment.

Variable rate mortgage (VRM) A mortgage with an interest rate that changes with fluctuations in such indexes as the prime rate, libor rate, or treasury bill.

Verification of deposit (VOD) As part of the loan process a lender may ask a borrower's bank to sign a statement verifying the borrower's account balances and history

Verification of employment (VOE) As part of the loan process a lender may ask the borrower's employer for confirmation of the borrower's position and salary.

Warehouse fee A closing cost fee representing the lender's cost of holding a borrower's loan temporarily before it is sold on the secondary mortgage market.

Wraparound mortgage A loan given to a buyer for the remaining balance on a seller's first mortgage and an additional amount requested by the seller. Payments on both amounts are made to the lender who holds the wraparound loan

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