Adjustable-rate mortgage (ARM) |
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
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Amortization |
The gradual repayment of a mortgage by installments, calculated to pay off the obligation at the end of a fixed period of time.
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Amortization schedule |
A timetable for payment of a mortgage showing the amount of each
payment applied to interest and principal and the balance remaining.
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Annual percentage rate (APR) |
The total cost of a mortgage stated as a yearly rate; includes
such items as the base interest rate, loan origination fee (points),
commitment fees, prepaid interest, and other credit costs that may
be paid by the borrower.
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Appraisal |
A professional opinion or estimate of the market value of a property.
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Appreciation |
An increase in the value of a property due to changes in market
conditions or other causes.
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Assessed value |
The valuation placed upon property by a public tax assessor that
is used to compute property taxes.
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Assumable mortgage |
A mortgage that can be taken over ("assumed") by the
buyer when a home is sold.
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Assumption |
The transfer of the seller's existing mortgage to the buyer.
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Binder |
A preliminary agreement between a buyer and seller that includes
the price and terms of the contract.
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Cap |
A provision of an ARM limiting how much the interest rate or mortgage
payments may increase or decrease.
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Cash reserve |
A requirement of some lenders that buyers have sufficient cash
remaining after closing equivalent to two months' mortgage payments.
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Clear title |
A meeting at which the sale of a property is finalized by delivery
of a deed from the seller to the buyer and by the buyer's signing
the mortgage documents and paying closing costs. Also called "settlement".
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Closing costs |
Expenses (over and above the price of the property) incurred by
buyers and sellers in transferring ownership of a property. Also called "settlement
costs".
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Commitment letter |
A formal offer by a lender stating the terms under which it agrees
to lend money to a home buyer.
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Contingency |
A condition that must be met before a contract is legally binding.
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Conventional mortgage |
Any mortgage that is not insured or guaranteed by the federal government.
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Convertible ARM |
An ARM that can be converted to a fixed-rate mortgage under specified
conditions.
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Cooperative |
A type of multiple ownership in which the residents of a multi-unit
housing complex own shares in the corporation that owns the property,
giving each resident the right to occupy a specific apartment or unit.
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Covenant |
A clause in a mortgage that obligates or restricts the borrower
and which, if violated, can result in foreclosure.
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Credit report |
A report of an individual's credit history prepared by a credit
bureau or consumer reporting agency and used by a lender in determining
a loan applicant's creditworthiness.
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Deed |
The legal document conveying title to a property.
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Deed of trust |
The document used in some states instead of a mortgage that gives
the lender a security interest in the property. Title is conveyed
to a trustee by the borrower (who retains equitable title). When the
debt is paid in full, title is re-conveyed to the borrower.
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Default |
The failure to make a mortgage payment on a timely basis or to
comply with other requirements of a mortgage.
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Delinquency |
A situation in which a payment on a loan is overdue but not yet
in default.
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Deposit |
See earnest money
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Depreciation |
A decline in the value of a property; the opposite of "appreciation".
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Discount points |
See points
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Down payment |
The part of the purchase price that the buyer pays in cash and
does not finance with a mortgage.
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Due-on-sale clause |
A provision in a mortgage allowing the lender to demand repayment
in full if the borrower sells the property securing the mortgage.
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Earnest money |
A deposit made by the potential home buyer to show that he or she
is serious about buying the house.
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Easement |
A right of way giving persons other than the owner access to or
over a property.
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Equal Credit Opportunity Act |
A federal law that prohibits lenders from discriminating on the
basis of the borrower's race, color, religion, national origin, age,
sex, marital status, or receipt of income from public assistance programs.
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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 the mortgage.
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Equity loan |
A loan based on the borrower's equity in his or her home.
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Escrow |
The holding of documents and money by a neutral third party prior
to closing; also, an account held by the lender (or servicer) into
which a homeowner pays money for taxes and insurance.
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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 in one's credit record.
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FHA mortgage |
A mortgage that is insured by the Federal Housing Administration.
Also referred to as a "government" mortgage.
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First mortgage |
A mortgage that has first claim to the secured property in the
event of default.
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Fixed-rate mortgage |
A mortgage in which the interest rate does not change during the
entire term of the loan.
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Flood insurance |
Insurance that compensates for physical property damage resulting
from flooding. It is required for properties located in federally
designated flood areas.
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Forbearance |
The lender's postponement of foreclosure to give the borrower time
to catch up on overdue payments.
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Foreclosure |
The legal process by which a mortgaged property may be sold when
a mortgage is in default.
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Graduated-payment mortgage |
A mortgage that starts with low monthly payments that increase
at a predetermined rate for a specified time. The initial monthly
payments are set at an amount lower than that required for full amortization
of the debt.
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Hazard insurance |
Insurance coverage that compensates for physical damage to a property
from fire, wind, vandalism, or other hazards.
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Homeowner's insurance |
An insurance policy that combines personal liability coverage and
hazard insurance coverage for a dwelling and its contents.
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Homeowner's warranty |
A type of insurance that covers repairs to specified parts of a
house for a specific period of time. It is provided by the builder
or property seller as a condition of sale.
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Interest |
The fee charged for borrowing money.
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Interest cap rate |
A provision of an ARM limiting how much interest rates may increase
per adjustment period or over the life of a mortgage. See also lifetime
cap.
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Joint tenancy |
A form of co-ownership giving each tenant equal interest and equal
rights in the property, including the right of survivorship.
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Late charge |
The penalty a borrower must pay when a payment is
made after the due date.
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Lease-Purchase Mortgage Loan |
A mortgage product that allows low- and moderate-income home buyers
to lease a home from a non-profit organization with an option to buy.
Each month's rent payment consists of PITI payments on the first mortgage,
plus an extra amount that is earmarked for deposit to a savings account
which money for a down payment will accumulate.
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Lien |
A legal claim against a property that must be paid off when the
property is sold.
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Lifetime cap |
A provision of an ARM that limits the total increase in interest
rates over the life of the loan.
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Loan commitment |
See commitment letter
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Loan servicing |
The collection of mortgage payments from borrowers and the related
responsibilities of a loan servicer.
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Loan-to-value percentage |
The relationship between the unpaid principal balance of the mortgage
and the appraised value (or sales price if it is lower) of the property.
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Lock-in |
A written agreement guaranteeing the home buyer 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.
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Mortgage |
A legal document that pledges a property to the lender as a security
payment for debt.
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Mortgage banker |
A company that originates mortgages exclusively for resale in the
secondary market.
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Mortgage broker |
An individual or company that for a fee acts as intermediary between
borrowers and lenders.
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Mortgage insurance |
See private mortgage insurance
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Mortgage insurance premium |
The fee paid by a borrower to the FHA or a private insurer for
mortgage insurance.
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Mortgage margin |
The set percentage the lender adds to the index value to determine
the interest rate of an ARM.
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Mortgage note |
A legal document obligating a borrower to repay a loan at a stated
interest rate during a specified period of time; the mortgage note
is secured by a mortgage.
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Mortgage interest rate |
The rate of interest in effect for the monthly payment due.
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Mortgagee |
The lender in a mortgage agreement.
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Mortgagor |
The borrower in a mortgage agreement.
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Negative amortization |
A gradual increase in the mortgage debt that occurs when the monthly
payment is not large enough to cover the entire amount of principal
and interest due. The amount of shortfall is added to the unpaid principal
balance, which results in "negative" amortization.
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Notice of default |
A formal written notice to a borrower that default has occurred
and that legal action may be taken.
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Origination fee |
A fee paid to a lender for processing a loan application; it is
stated as a percentage of the mortgage amount
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Owner financing |
A property purchase transaction in which the property seller provides
all or part of the financing.
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Payment cap |
A provision of some ARMs limiting the amount by which a borrower's
payments may increase regardless of any interest rate increase; may
result in negative amortization. See adjustable-rate mortgage.
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PITI |
Stands for principal, interest, taxes, and insurance - the components
of a monthly mortgage payment.
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Planned unit development (PUD) |
A project or subdivision that consists of common property that
is owned and maintained by an owner's association for the benefit
and use of the individual unit owners.
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Points |
A one-time charge by the lender to increase the yield of the loan;
a point is 1 percent of the amount of the mortgage.
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Prepaids |
Fees collected at closing to cover items such as setting up escrow
accounts for property taxes, homeowner's insurance, and mortgage insurance
premiums.
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Prepayment penalty |
A fee that may be charged to a borrower who pays off a loan before
it is due.
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Pre-qualification |
The process of determining how much money a prospective home buyer
will be eligible to borrow before a loan is applied for.
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Principal |
The amount borrowed or remaining unpaid; also, that part of the
monthly payment that reduces the outstanding balance of the mortgage.
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Private mortgage insurance (PMI) |
Insurance provided by non-government insurers that
protects lenders against loss if a borrower defaults. Fannie Mae generally
requires
PMI for loans with loan-to-value percentages greater than 80 percent.
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Purchase and sale agreement |
A written contract signed by the buyer and seller stating the terms
and conditions under which a property will be sold.
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Qualifying ratios |
Guidelines applied by the lenders to determine how large a loan
to grant a home buyer.
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Radon |
An invisible, odorless gas found in some homes that in sufficient
concentrations may cause health problems.
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Rate lock |
See lock-in
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Real estate sales professional |
A person licensed to negotiate and transact the sale of real estate
on behalf of the property owner.
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Real Estate Settlement Procedures Act |
A consumer protection law that requires lenders to give borrowers
advance notice of closing costs.
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Refinancing |
The process of paying off one loan with the proceeds from a new
loan using the same property as security.
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Rent with option to buy |
See lease-purchase mortgage loan
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Second mortgage |
A mortgage that has a lien position subordinate to the first mortgage.
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Secondary mortgage market |
The buying and selling of existing mortgages.
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Seller take-back |
An agreement in which the owner of a property provides financing,
often in combination with an assumed mortgage.
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Settlement |
See closing
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Settlement Statement |
The computation of costs payable at closing that determines the
seller's net proceeds and the buyer's net payment (referred to as
a HUD-1).
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Survey |
A drawing or map showing the precise legal boundaries of a property
and the location of improvements, easements, rights of way, encroachments,
and other physical features.
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Tenancy by entirety |
A type of joint ownership of property that provides rights of survivorship
and is available only to a husband and wife.
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Tenancy in common |
A type of joint ownership in a property without rights of survivorship.
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Title |
A legal document evidencing a person's right to or ownership of
a property.
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Title company |
A company that specializes in examining and insuring titles to
real estate.
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Title insurance |
Insurance to protect the lender (lender's policy) or the buyer
(owner's policy) against loss arising from disputes over ownership
of property.
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Title search |
An examination of the public records to ensure that the seller
is the legal owner of the property and that there are no liens or
other claims outstanding.
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Transfer tax |
State or local tax payable when title passes from one owner to
another.
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Truth-in-Lending Act |
Act A federal law that requires lenders to fully disclose, in writing,
the terms and conditions of a mortgage, including the APR and other
charges.
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Underwriting |
The process of evaluating a loan application to determine the risk
involved for the lender. It involves an analysis of the borrower's
creditworthiness and the quality of the property itself.
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VA loan |
A loan that is guaranteed by the U.S. Department of Veterans Affairs.
Also referred to as a "government" mortgage. |
