Mortgage Glossary

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

adjustable-rate mortgage (ARM)
A mortgage that changes interest rate periodically based upon the changes in a specified index.

amortization
The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

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

annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).

appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.

appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

assumption
The transfer of the seller's existing mortgage to the buyer.

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

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

balloon mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

before-tax income
Income before taxes are deducted.

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

biweekly payment mortgage
A mortgage 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 mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.

breach
A violation of any legal obligation.

bridge loan
A bridge loan is used for people who currently have a home for sale and the closing is NOT going to happen before the closing on their new home. The bridge loan provides the money for the down payment on the new home. It is usually for 6-months to a year with interest-only payments and an interest rate that is usually a little higher than the going interest rate. They can be costly for the person needing the bridge loan because they are making payments on two properties.

broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

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

cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

certificate of eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage. 

certificate of reasonable value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage. 

certificate of title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

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

closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.

cloud on title
Any conditions revealed by a title search that adversely affects the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

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

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

commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a homebuyer. Also known as a "loan commitment."

common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

community home improvement mortgage loan
An alternative financing option that allows low- and moderate-income homebuyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value. 

comparables
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

contract
A written or oral agreement to do or not to do a certain thing.

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

convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

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

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

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

credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

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 merge credit report.

debt 
An amount owed to another.

deed
The legal document conveying title to a property.

deed-in-lieu
A deed given by a mortgagor to the mortgage to satisfy a debt and avoid foreclosure.

deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

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

delinquency
Failure to make mortgage payments when mortgage payments are due.

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

down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

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

earnest money deposit 
A deposit made by the potential homebuyer to show that he or she is serious about buying the house.

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

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

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

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

equity
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 its mortgage.

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

eviction
The lawful expulsion of an occupant from real property.

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

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

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

Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Fannie Mae's Community Home Buyer's Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase homebuyer education sessions.

Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or construct housing. 

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

FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

first mortgage
A mortgage that is the primary lien against a property.

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

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 in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

good faith estimate
An estimate of charges, which a borrower is likely to incur in connection with a settlement.

hazard insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

housing ratio
The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front-end ratio.

HUD
The U.S. Department of Housing and Urban Development.

lien 
An encumbrance against property for money due, either voluntary or involuntary.

loan to value ratio (LTV)
The ratio of the amount of your loan to the appraised value of the home. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.

lock-in
A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

low doc 
With these loans the borrower provides fewer documents to the lender than is normally required. Each lender is different so the requirements may vary (possibly only one pay stub and one month's bank statement). These loans are usually for a shorter term and at a higher interest rate.

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

mortgage disability insurance
A disability insurance policy, which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.

mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.

mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.

non-conforming loan 
Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. 

note
A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.

origination fee
A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

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

planned unit developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels. 

PITI
Principal, interest, taxes and insurance--the components of a monthly mortgage payment.

points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.

prepaids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

principal
Amount of debt, not including interest. The face value of a note or mortgage.

private mortgage insurance (PMI)
Insurance provided by nongovernmental insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

rate cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.

refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.

residential mortgage credit report (RMCR) 
A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.

seller carry back 
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.

tenants-in-common 
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

title
The evidence one has of right to possession of land.

title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.

total debt ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

truth-in-lending act 
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions. 

Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.