A

Abstract

A brief summary showing the history of a property taken from public records.

Acceleration Clause

A clause in a trust deed or mortgage allowing the lender to ask for all payment at once, if loan installments are not paid when due.

Accounts Payable

Money owned by a business (liabilities).

Accounts Receivable

Money owed to a business (assets).

Accrued Interest

Interest which has been earned by a lender, but which has been allowed to accumulate and to be paid by the borrower at a specified later date.

Additional Property

Address of real estate that a person owns that is not being financed.

Adjustable Rate Mortgage

(ARM) A mortgage which permits the lender to adjust the rate of interest upwards or downwards in accordance with a specified index.

Adjustment Period

On an ARM, the time between scheduled changes to the loan payment and interest rate, usually one, three or five years, depending on the terms of the specific ARM loan program.

Affidavit

A written statement sworn to before an authorized official.

Agent

One that acts for or represents another.

Agreement of Sale

A written document in which a purchaser agrees to buy property under certain conditions, and the seller agrees to sell under certain given conditions.  Agreement of Sale is also known as a “Sales Contract”.

Amortization

The retirement of the principal of the loan on an installment basis.

Annual Percentage Rate

(APR) Finance charge over a full year, in percentage form, reflecting all costs of the loan.

Application

A form commonly referred to as the 1003 Form used to apply for a mortgage to record necessary information concerning a prospective mortgage.

Appraisal

An estimate of the market value of a piece of real estate, lenders use this to determine how much they will lend on a property.

Appraiser

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

Appraised Value

The estimated value determined by an appraiser of a property’s market worth.  It is determined by three main factors:
1.  Replacement cost;
2.  Capitalization of the property’s current and future income;
3.  The selling price of comparable properties.

Appreciation

An increase in the value of the property over time.

Approval

An assessment made by a lender of a borrower’s ability to pay for a home and a confirmation of the amount the borrower may obtain.

Assessed Value

A value placed by a tax officer or board on property as a basis for taxation.

Assessment

A charge against the property for taxation purposes.

Asset

Anything of value that is owned by a person that has a monetary exchange value.

Assignment

The transfer of a mortgage from one person to another.

Assumable

A loan or obligation that can be taken over by a new borrower.

Assumable Mortgage

A mortgage that can be taken over or ‘assumed’ by the buyer when the home is sold.

Assumption Fee

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

Attorney-In-Fact

One who has the authorization to perform certain acts for another person, under the power of attorney.

B

Balance Sheet

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

Balloon Mortgage

A mortgage loan which is written with an amortization schedule that is longer than the loan term, therefore, requiring a payment of the remaining principal at the end of the loan term.

Balloon Payment

The final installment payment on a note that is greater than the preceding installment payments and pays the note off in full.

Bank

A financial institution that rents money from others and guarantees the return of that money.  It in turn lends the money out and takes the risk of any loss.

Bankruptcy

A court action declaring a person free of most debt, due to the inability of the person to pay.

Basis Point

A unit of measure:  1/100th of one percent.  For example, the difference between a 7.0% loan and a 7.5% loan is 50 basis points.

Bill of Sale

A written document that serves as evidence of the transfer of title to personal property.

Binder

A notation of coverage on an insurance policy.

Blanket Mortgage

A single mortgage which covers more than one parcel of property.

Borrower

A person (mortgager) who receives funds in the form of a loan with an obligation to repay principal with interest.

Bridge Loan

A short-term loan that bridges a gap between two other loans, usually intended to provide temporary financing in a period between two basically different loan types.

Broker

An agent between two or more persons engaged in a business transaction.

Buydown

A term used to describe a purchased reduction in interest rates and payments.

C

Cap

A limit on the increase of an adjustment rate or the mortgage payment for an adjustable-rate mortgage (ARM).

Capital

The accumulated wealth (money and/or property) of a person or business.

Capital gains

Profit from the sale of an asset rather than from a general business activity.  Capital gains are generally taxed at a lower rate than ordinary income.

Capital Loss

Loss from the sale of property.

Cash-Out Refinance

A refinance transaction where the amount of money from the new loan exceeds the total amount of money needed to pay off the existing first and subordinate mortgages, closing costs, and points.  The additional cash can be used for any purpose.

Certificate of Eligibility

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

Certificate of Title

A document showing that a piece of property is legally vested in the present owner.

Closing

The getting together of the buyer, lender, seller and their agents to finalize the sale and purchase or property.

Closing Costs

Fees and expenses paid by the borrower at the closing of a loan.  Includes origination fee, discount points, appraisal, credit report, title insurance, etc.

Closing Statement

Also referred to as the “HUD-1”.  The final statement of costs incurred to close a loan or to purchase a home.

Co-Borrower

Additional borrower whose income contributes to qualifying for a loan and whose name appears on all documents worth equal legal obligations.

Collateral

The property pledged by a borrower to assure loan repayment, property is subject to seizure if loan is in default.

Combination Loan

A loan in which the borrower receives a first mortgage for 80% and a second mortgage at the same time for the remainder of the balance.

Combined Loan-to-Value

(CLTV)  The total of all liens on the subject property, divided by the appraised value.

Commercial Loans

Loans made to commercial businesses (hotels, shopping centers, warehouses, etc.)

Commission

An agent’s compensation for performing the duties of his agency.

Commitment

A firm agreement made by a lender to provide funds for the borrower at a specified future date.  The commitment stipulates amount and terms of the promised loan.

Comparison Approach

A method used in appraising by comparing recent sales prices of similar properties.

Conforming Loan

A loan that is eligible for purchase by FNMA or FHLMC.  It conforms to their regularity limits such as loan-to-value ratio, amount and other characteristics.

Construction Loan

A loan made for the construction of residential or commercial buildings. Funds are usually disbursed to the contractor/builder during construction.

Contingency

A clause in a contract stating that the buyer or seller must meet a given condition before the purchase can be completed.

Contract

An agreement between two or more parties in which legal formalities are met.

Conventional Loan

A loan made without government backing.

Credit

An arrangement made between borrower and lender so that the borrower can receive cash, goods or services now and pay for them at a later date.

Credit Bureau

An agency which assembles credit information on consumers which they supply to others so that the credit standing and capacity of the consumer can be established.

Credit Rating

An evaluation of a person’s or firm’s previous credit experience.

Debt-To-Income Ratio

The ratio of a borrower’s monthly debt payments to his or her monthly gross income.  Lenders use this ratio in determining how much to lend.

Deed

The legal document conveying title to a property.

Default

Failure to fulfill the requirements of an obligation, such as failing to make payments.

Deferred Interest

Accrued but unpaid interest, payments are delayed to a later date.

Deposit

A sum of money given to bind a sale of real estate. Also known as earnest money.

Depreciation

The decline in value of an asset over time due to age, physical determination and/or obsolescence.

Disclosure Statement

A set of documents given to the applicant that provide specific information about loan terms, conditions and a summary of estimated costs.

Discount Point

Amount payable to the lending institution by the borrower or seller to increase the lender’s effective yield.  One point is equal to one percent of the loan amount.

Down Payment

The difference between the purchase price and the mortgage amount for the home purchase transactions.

E

Earnest Money

A deposit accompanying an offer to purchase property.

Easement

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

Encumbrance

A burden, hindrance or legal claim placed on a property that limits the fee simple title to the property.

Equal Credit Opportunity Act

(ECOA) A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion.

Equity

The value of the property which an owner has over and above the liens against it.

Escrow

A procedure whereby a third party handles money or legal documents of a buyer and seller until all conditions of a sales agreement and loan is fulfilled.

Estate

The ownership interest of an individual in real property and personal property owned by an individual at the time of death.

Estimated Market Value

The dollar amount you believe your present home would be worth if you decided to sell it today.

F

Fair Credit Reporting Act

(FCRA) A federal law which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information.

Fair Market Value

The highest price that a seller can expect to obtain from the sale of property or assets in today’s market.

Fannie Mae

A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.  Also known as Federal National Mortgage Association (FNMA).

Federal Home Loan Mortgage Corp.

(FHLMC)  “Freddie Mac” – a federal agency used to develop a secondary market in conventional residential mortgages.  They purchase packages originated by saving and loan associations.

Fee Simple

The greatest possible interest a person can have in real estate, including the right to dispose of property or pass it on to one’s heirs.

Federal Housing Administration

(FHA) A government agency which insures residential mortgages.  They impose certain structural and qualifying standards, but the interest rate is set by Congress.

Finance Charge

The cost charged to retain a loan.

First Mortgage

The first recorded mortgage on a property.

Fixed Rate Mortgage

(FRM)  A mortgage where the rate of interest stays the same throughout the term of the loan.

Floating Rate Mortgage

The interest rate on a loan moves with the float of the bank’s prime rate.  This rate can be adjusted either monthly, quarterly, yearly, or as stated by the lender.

Flood Insurance

A form of insurance designed to reimburse property owners from loss due to a flood. This is required for properties located in federally designed flood areas.

Foreclosure

The procedure whereby the property pledged a security for debt is sold to pay the debt in the event there is a default in payments and terms.

G

Good Faith Estimate

A disclosure that must be given to all mortgage loan applicants within three days of an application.  It is an estimate of all settlement charges likely to be incurred at closing.

Grace Period

The period of time after the due date of a loan that is not subject to late charges.

Guarantee Mortgage

A mortgage guaranteed by a third-party, such as a governmental institution.

H

Hazard Insurance

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

Home Equity Line of Credit

(HELOC) A credit line that is secured by a second deed of trust on the house, this a revolving account that works like a credit card which can be paid down or charged up for the term of the loan.  Minimum payment each month is interest only.

Home Equity Loan

A loan secured by a second deed of trust on the house, typically used as a home improvement loan.

Homeowners Association Dues

The fees imposed by a condominium or homeowners association for maintenance of common areas.

Housing Ratio

The amount of monthly housing payment in total (PITI, Principal, Interest, Taxes, Insurance) divided by the gross monthly income.  This ratio is often referred to as the front ratio.

Home Warranty

A type of insurance that covers repairs to certain mechanical systems and appliances (not covered by hazard insurance).

I

Income Approach

An analysis used in making an appraisal in which the estimated income from the subject property is used as a basis for estimating its value.

Income Property

Real estate which generates a profit, such as apartments and most commercial and industrial properties.

Index

An economic indicator which lenders use to calculate interest rate on mortgages (ARMs).

Initial Interest Rate

The introductory interest rate on an adjustable rate mortgage, which usually changes at the first rate adjustment.

Interest

The periodic charge for the use of borrowed money.

Interest Only Loan

A loan for which there is no principal reduction for the full term of the loan.  Payments are interest-only and the entire principal will be due at the end of the term.

Interest Rate Cap

A limit to the interest rate increases and decreases on an adjustable rate loan, either from adjustment period to the next or over the life of the loan.

Investment Property

Property the applicant does not intend to occupy, whether or not the property provides income.

J

Joint Venture

Two or more parties in a partnership.

Jumbo Mortgage

Also known as a “non-conforming” mortgage.  These loans are not eligible for resale to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines.

K

Keogh Retirement Plan

A retirement plan for the self-employed.

L

Lease

A contract set up between owner of the property and a tenant, that sets forth conditions for the tenant for the use and term of the property.

Lessee

A person who rents property for a fee under a lease contract.

Lessor

A person who owns property and leases out to a tenant for a fee.

Liability

Obligations or debts that are owed to others.

Lien

A legal hold or claim of a creditor on the property of another.

Lien Search

An examination of public records to identify any claims or a creditor against real or personal property.

Limited Partnership

A partnership made up of some partners who have limited contributions and liabilities.

Line of Credit

The amount of money that a lender makes available to a borrower.

Loan Term

The period granted for a loan repayment.

Loan-To-Value

The amount of the loan expressed as a percentage of the appraised value.

M

Margin

A margin or spread is the difference between the interest rate charged on the loan and the index.  Generally the margin remains fixed over the life of the loan.

Maintenance Fee

A monthly fee set by a homeowners association to repair a common area.

Market Value

The highest price that a seller can expect to obtain from the sale of property or asset in today’s market.

Maturity

The time when a mortgage or note becomes due.

Mortgage

A lien or claim against real property given by the buyer to the lender as security for money borrowed.

Mortgage Insurance

Also known as “private mortgage insurance” (PMI).  Insurance which protects mortgage lenders against loss in the event of default by the borrower.  This insurance is often required when making a down payment less than 20%.

Mortgagee

The lender in the mortgage transaction.

Mortgagor

The borrower in a mortgage transaction.

Multi-family

A building with more than residential units.

N

Negative Amortization

This happens in a loan in which the interest rate is higher than the payment actually paid.  So that the principal increases and the borrower owes more than his original balance.

Non-Conforming Loan

A mortgage loan that does not conform to regulatory limits such as loan-to-value ratio, term and other characteristics.

Non-Owner Occupant

A borrower who will not be residing in the subject property as their principal residence, the borrower on rental/investment property.

Note

A signed written document used as legal evidence of a debt and promising payment on a certain date.

No-Doc Loan

A loan that does not require any verification of income.

O

Occupancy

The use of property as a full-time residence, either by titleholder (owner occupancy) or by another party through a formal agreement (rental).

Open-End Mortgage

A mortgage which contains a clause which allows the mortgagor to borrower additional money after the loan has been reduced.

Option ARM

An adjustable rate mortgage loan with the option of four different monthly payment amounts:  minimum payment, interest only, full principal and interest (30-year term) and full principal and interest (15-year term).  These loans typically have a low initial fixed interest rate and after a specified period of time adjust monthly.  Deferred interest or negative amortization can result from these loans.

Origination Fee

A fee charged by a mortgage broker or lending institution to cover the expenses accumulated in evaluating or pricing a loan.

Owner Occupant

A residence lived in by the borrower.

P

Payment Cap

The limit that the monthly payment can change from one adjustment period to another.

Payment Shock

When there is a sharp adjustment in monthly housing payments, borrower may not be able to afford the payments the loan will require.

Payoff

Complete repayment of the loan principal, interest and other sums due.  Payoffs occur over the full amortization of a loan or when the property is refinanced.

Per Diem Interest

Interest calculated per day to cover the period of time from disbursement of the loan proceeds until the start of the first payment period.

PITI

(Principal, Interest, Taxes, Insurance) The common components of monthly housing payments.

Planned Unit Developments

(PUD) A type of subdivision that has an area owned in common by all owners of the subdivision.

Plat

A map or plan of parcels of land.

Points

A percentage of the loan amount paid to the lender when the loan is negotiated for the privilege of borrowing a sum of money.  Each point is one percent.

Power of Attorney

A legal document in which a person (the principal) gives another person (the attorney) the right to act on his/her behalf in specific transactions.

Preliminary Title Report

The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

Prepayment Penalty

A penalty charged when a mortgage or note is prepaid before the due date.

Principal

Initial loan amount borrowed by the lender.

Principal Balance

The remaining amount or balance of the mortgage loan.

Private Mortgage Insurance

Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.  Typically required when the LTV exceeds 80%.

Processing

The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

Proxy

A document that allows one person to act for another.

Purchase Contract

An agreement between buyer and seller of real property, setting forth the price and terms of sale.  Also known as sales contract.

Purchase Price

The total sales price of the purchase property.

Q

Qualifying Rate

The rate used to underwrite the loan.  This rate may or may not be equal to the initial or not rate.

Quit-Claim Deed

A document that releases a person from any ownership interest in a piece of real estate.

R

Rate Lock

The amount of time a lender will guarantee a loan’s interest rate.

Real Estate Settlement Procedures Act

(RESPA) A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs.  It also establishes guidelines for escrow account balances and the disclosure of settlement costs.

Real Property

Property that is considered immovable, consisting of land and the fixtures.

Realtor

A real estate broker who holds active membership in real estate board affiliated with the National Association of Realtors.

Recording

Filing for public record in the County Recorder Office.

Refinance

To pay off an existing loan debt or with proceeds of another.  This is done to obtain a lower interest rate, or to cash out on equity in a property.

Rescission Period

Three business days during which certain applicants with loans secured by an owner-occupied dwelling may rescind their loan.

Reserve

Money or assets set aside to be available to assure future payments.

S

Sales Contract

A written document in which a purchaser agrees to buy property under certain given conditions, and the seller agrees to sell under certain given conditions.

Satisfaction of Mortgage

The recordable instrument issued by the lender verifying full payment of a mortgage debt.

Second Mortgage

Any mortgage that is recorded after the first mortgage.  If the loan is not repaid, the first mortgage holder has first right to the property.  The second mortgage holder receives anything remaining.

Secondary Mortgage Market

The place where existing loans are bought and sold.  It provides greater availability of funds to primary lenders for additional lending.

Settlement Statement

A statement prepared by the broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.  A separate statement is prepared for both seller and buyer.

Specs

The specifications made up for a proposed construction which include dimensions, materials and costs.

Spec Loan

A loan made based on the speculation that the property will be full, or nearly fully leased, soon after the construction is complete.

Subordinate Financing

Any mortgage or other lien that has a lien position behind that of the first mortgage.

Survey

A map executed by a licensed surveyor, which sets down the borders of a given property, as well as, improvements, references to known landmarks, and the property’s notable features.

T

Term

The length of time for a loan to be repaid.

Title

Document showing legal ownership of a property.

Title Insurance

An insurance that protects the lender against loss resulting from any inconsistencies in the title of a property from liens or other title problems relating to a property.

Title Search

A check of public records, usually done by a title office, to determine credit ownership of a certain parcel of real estate.

Total Debt Ratio

Monthly debt and housing payments divided by gross monthly income.  Also known as “back-end ratio”.

Transfer tax

A real estate purchase transaction may require state or local taxes payable when title passes from one owner to another.

Trustee

One who holds property for another to secure the performance of an obligation.

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 financial institutions.

U

Underwriting

Analysis of risk and setting of an appropriate rate and term for a mortgage on a given property for given borrowers.

V

VA Loan

A loan that is partially guaranteed by the Department of Veterans Affairs and made by a private lender.

Veteran Affairs

A government agency that aids Veterans of the United States armed forces in obtaining housing.  Its assistance takes the form of a partial guarantee of repayment to lenders in the event of borrower default.

Verification

A sworn statement before a qualified officer to the correct content of a document.

Vested

Bestowed upon someone.

W

Wholesale Lender

A lender who works only with mortgage brokers and takes completed loan packages and underwrites them.  They offer mortgage brokers discounted pricing in return for the upfront work done by the mortgage broker.

X

NO TERM FOUND

Y

Yield

The interest or return earned on an investment.

Z

Zoning

The division of a city or county by legislative regulators into areas specifying the permitted uses allowable for the real property in these areas.