_{^{(Click on term for definition)}} (Click here to go back to alphabet)

-A-

Amenity: A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).


Amortization: The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. A loan is amortized or paid off over time as the principal portion of the monthly payment is applied to reduce the balance until it reaches zero.


Amortization Schedule: A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Annual Percentage Rate (APR): The annual percentage rate or APR is the yield or income a lender receives on a loan expressed as an interest rate. The note rate on a loan indicates the rate of interest charged on a loan but does not reflect other fees charged by the lender. The APR reflects both; allowing the borrower to evaluate different loans with different structures and make an apples to apples comparison. 


Application: The form used to apply for a mortgage loan, containing information about a borrower's income, assets, and liabilities; as well as the property used as collateral for the loan. 


Appraisal: A professional independent opinion of the value of a piece of property; based primarily on an analysis of recent comparable sales of similar properties.


Appraised Value: An opinion of a property's fair market value; based on an appraiser's knowledge, experience, and analysis of the property. The appraisal is a requirement of the loan to determine if the property is suitable collateral. 

Appraiser: An individual, often licensed by the state, and qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.


ARM: ARM stands for Adjustable Rate Mortgage. ARM is a mortgage loan with an interest rate that is subject to change based on an overall change in rates as reflected by an economic indicator. The indicator chosen, the way the adjustment is measured, the frequency and limit of interest rate changes (and the subsequent change in payments) are specifically set out in the terms of the loan .


Assessor: A public official who establishes the value of a property for taxation purposes.


Assumable Mortgage: A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit approval involved in the transfer of an assumable mortgage.

-B-


Balloon Mortgage: A mortgage that is amortized as a 30 year loan with an interest rate fixed for initial period of time (typically 5 or 7 years) at which time the balance balloons or comes fully due and payable. Because of the shorter term of the loan; the interest rate is generally lower than what is available on a loan with a 30 year term.


Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.


Building Code: A national or international set of standards adopted by a local municipality as a basis for regulations that determine the design, construction, and materials used in construction.


Budget: A detailed record of all income earned and spent during a specific period of time.

-C-


Cap: A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.


Cash Reserves: A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.


Certificate of Title: A document provided by a qualified source title insurance company; that insures the property legally belongs to the current owner. When the title is transferred at closing, it should be clear and free of all liens or other claims.


Closing: Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.


Closing Costs: Closing costs can most easily be explained as the cost of borrowing money. They represent the fees for services necessary to administer or make a decision on a loan and could include attorney’s fees, origination fees, appraisals, credit reports, document preparation, surveys and recording fees. Prepaid expenses are the cost of setting up your escrow account where you prepay ongoing expenses including taxes, insurance, and mortgage insurance if applicable.

Commission: An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for bringing the buyer and seller together.


Condominium: A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; and shares ownership with the other owners in the complex of the common areas.


Conventional Loan: Refers to home loans other than government loans (VA and FHA).


Cooperative (Co-op): Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.


Credit History: A history of how an individual has handled their credit obligations. Lenders use this information to gage a potential borrower's ability to repay a loan.


Credit Report: A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.


Credit Bureau Score: A number assigned by the credit bureau to an individual based on their credit history and used to predict how they might handle a liability based on past performance. Some loan programs require a minimum credit score.

-D-


Debt-To-Income Ratio: Your proposed housing expense and your other monthly obligations as a percentage of your gross income. Most loan programs will not allow your debt to income ratios to exceed certain limits to qualify for a loan.


Deed: The document that transfers ownership of a property.


Default: The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.


Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement.


Discount Point: Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.


Down Payment: The borrowers required upfront investment towards their home purchase. The minimum down payment will vary depending on the loan program and borrowers qualifications.

-E-


Earnest Money: Most states require the use of an earnest money or “good faith money” contract to buy and sell real estate. Earnest money is a deposit that is presented with an offer as a show of the buyer’s “good faith”. If the contract is accepted the money is deposited with a third party and credited to the buyer at closing.


Equity: An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.


Escrow Account: Generally lenders require that a borrower maintain an escrow account; a trust account that is held on your behalf to pay for taxes, insurance, and mortgage insurance if applicable. A portion of your monthly payment is designated to go into this account to handle these items. 

-F-

Fair Housing Act: A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.


Fair Market Value: The price at which a willing buyer and seller agree upon when they are acting freely, carefully, and with complete knowledge of the situation.


Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.


FHA: Federal Housing Administration; a government entity established in 1934 to advance homeownership opportunities for all Americans. FHA assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fixed-Rate Mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change from year to year.


Flood Insurance: Insurance that protects homeowners against losses from a flood; if a home is located in a floodplain; the lender will require flood insurance before closing a loan.


Foreclosure: A legal procedure in which a mortgage property is sold to pay the outstanding debt in cases of default.


Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers.

-G-


Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.


Good Faith Estimate: A written estimate of all closing fees; including pre-paid and escrow items as well as lender charges. The GFE must be given to the borrower within three business days after submission of a loan application.

-H-


Home Inspection: An examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.


Home Warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure and foundation


Homeowner's Insurance: An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that resulted in someone's injury or property damage.

Housing Counseling Agency: Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.


HUD: The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.


HUD1 Statement: Also known as the "settlement sheet," it itemizes the terms of the transaction including all closing costs, and must be given to the borrower at or before closing.


HVAC: Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

-I-

Index: A published economic indicator of a specific type of interest cost such as the One Year Treasury Security. Used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage (ARM). 


Interest: 1. Fee charged for the use of money. 2. Right, share, or title in property.


Interest Rate: The amount of interest charged on a monthly loan payment; usually expressed as a percentage.


Insurance: Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

-L-


Lease Purchase: Assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.


Lien: A legal claim against property that must be satisfied when the property is sold.


Loan: Money borrowed that is usually repaid with interest under specific terms and over a specific period of time.


Loan Fraud: Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan-To-Value (LTV) Ratio: Your loan amount as a percentage of the value of the property you are financing.


Lock-In: Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed under certain conditions and within a specific time.

-M-

Margin: An amount the lender adds to a specific index to determine the interest rate on an adjustable rate mortgage (ARM).


Mortgage: A lien on the property that secures the Promise to repay a loan.


Mortgage Banker: A company that originates mortgage loans and resells them to secondary mortgage lenders.


Mortgage Broker: A firm or individual who, for a commission, matches borrowers and lenders.


Mortgage Insurance: A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is generally required primarily for borrowers with a down payment of less than 20% of the home's purchase price.


Mortgage Insurance Premium (MIP): The amount of money due to secure mortgage insurance. The premium can be paid upfront, financed into the loan, or paid monthly depending on the loan program.

-O-


Offer: Indication by a potential buyer of willingness to purchase a home at a specific price; generally put forth in writing in the form of a contract.


Origination: The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.


Origination Fee: The charge for originating a loan; is usually calculated in the form of points and paid at closing.

-P-

Partial Claim: A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.


PITI: Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (and mortgage insurance if applicable) goes into an escrow account to cover the fees when they are due.


PMI: Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.


Pre-Approve: A commitment to lend issued to a borrower before they’ve secured a property under certain terms and conditions.

Pre-Foreclosure Sale: Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.


Pre-Qualify: A lender informally determines the maximum amount an individual is eligible to borrow.


Premium: An amount paid on a regular schedule by a policyholder that maintains insurance coverage.


Prepayment: Payment of the mortgage loan before the scheduled due date; may be subject to a "prepayment penalty."


Principal: The amount borrowed from a lender; doesn't include interest or additional fees.

-R-

Radon: A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.


Real Estate Agent: An individual who is licensed to negotiate and arrange real estate transactions; works for a licensed real estate broker.


Realtor: A real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.


Refinancing: Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).


Rehabilitation Mortgage: A mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.


RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

-S-

Settlement: The closing purchase transaction and the execution of a mortgage loan.


Special Forbearance: A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.


Subordinate: To place in a rank of lesser importance or to make one claim (like a mortgage lien) secondary to another.


Survey: A measurement of land, prepared by a registered land surveyor that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.


Sweat Equity: Using labor to build or improve a property as part of the down payment.

-T-

Title 1: An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien.


Title Insurance: A policy required by the lender and paid for by the borrower that insures the lender clear title against future claims. Borrowers may also purchase title insurance to protect their interests in the property.


Title Search: A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.


Truth-In-Lending: A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with a mortgage loan.

-U-

Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

-V-

VA: Department of Veterans Affairs: a federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

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