Glossary of Terms   

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 A
Acceleration The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due On Sale Clause.
Adjustable Rate Mortgage A loan in which the interest rate is periodically increased or decreased to reflect changes in the cost of money; commonly called an ARM.
Alimony Received Can be counted on to qualify if it is received on a regular basis and will continue for another 3 years.
Amortized Loan A loan structured to require regular, level payments, each including a portion for principal and a portion for interest. The loan is fully amortized if the payments will pay off the debt in full by the end of the loan term; it is partially amortized if a balloon payment of the remaining principal balance will be required at the end of the term.
Annual Percentage Rate (APR) Under the Truth In Lending Act, the relationship between a loan's total finance charge and the total amount financed, expressed as an annual percentage. The total finance charge includes interest, any discount points paid by the borrower, the loan origination fee, and mortgage insurance costs
Appraisal An expert's estimate of the value of a piece of real estate as of a particular date, based on a documented analysis of the property's features; also called a valuation.
Appreciation An increase in a property's value; the opposite of depreciation.
Arm's Length Transaction Any transaction in which there is no pre-existing family or business relationship between the parties.
Assessment A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Asset Anything of value that a person owns. When completing your loan application, you will have to provide the following information regarding your assets: complete information on all bank and money market accounts, two months of current bank statements, current values of stocks, bonds, mutual funds, and other investments, vested interest in retirement funds, face amount and cash value of life insurance, information on any cars and real estate you own; and the value of any significant personal property you own.
Assets, Liquid Cash or other assets that can be readily turned into cash (liquidated), such as stock.
Assumption The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.
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 B
Balloon Mortgage A mortgage loan which requires the borrower to make a balloon payment.
Balloon Payment The payment of the remaining principal balance due at the end of the term of a partially amortized or interest only loan; so called because it is much larger than the regular payments made during the loan term; or, any loan payment that is larger than the regular payments.
Bi-Weekly Loan A fixed-rate loan that requires a payment every two weeks instead of once a month, so that the borrower makes 26 half payments per year, the equivalent of 13 monthly payments.
Bill of Sale A document used to transfer title to personal property from one person to another.
Blanket Mortgage A mortgage covering at least two pieces of real estate as security for the same mortgage.
Bonus Ongoing bonus payments received. You will need to provide signed income tax returns/W-2's to verify income.
Borrower (Mortgagor) One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Broker An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Brokerage Fee The commission and other compensation charged for a real estate broker services.
Buydown When the seller or a third party pays the lender a lump sum at closing to lower the interest rate charged to the buyer, either for the life of the loan (permanent buydown) or only during the first years of the loan term (temporary buydown).
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 C
Cap A limit on the amount the interest rate or monthly payment can increase in an Adjustable Rate Mortgage (ARM).
Capitalization A method of appraising real property by converting the anticipated net income from the property into the present value. Also called the income approach to value.
Cash Flow The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).
Certificate of Eligibility A document issued by the Veterans Administration, indicating a veteran's eligibility for a VA-guaranteed loan.
Certificate of Reasonable Value A document issued by the Veterans Administration, setting forth a property's current market value, based on a VA-approved appraisal.
Chattel Mortgage An instrument that makes personal property (chattels) security for a loan. In states that have adopted the Uniform Commercial Code, the chattel mortgage has been replaced by the security agreement.
Child Support Can be counted on to qualify if it is received on a regular basis and will continue for another 3 years.
Closing The final stage in a real estate transaction, when the loan funds are disbursed, the seller is paid the purchase price, and the buyer receives the deed; also called settlement.
Closing Costs Expenses incurred in the transfer of real estate, aside from the purchase price; for example, the appraisal fee, title insurance premiums, brokerage fee, and transfer taxes. Also called settlement costs.
Co-Borrower Someone (often a member of the borrower's family) who accepts responsibility for repayment of a mortgage loan, along with the primary borrower, to help the borrower qualify for the loan. Also called a co-mortgagor.
COFI Adjustable Rate Mortgage with rate that adjusts based on a Cost Of Funds Index, often the 11th District Cost of Funds.
Collateral Property (personal or real) accepted by a lender as security for a loan, which can be sold if the borrower fails to repay as agreed.
Commission The compensation paid to a real estate broker for services in connection with a real estate transaction.
Commitment A lender's promise to make a loan. A loan commitment may be either firm or conditional. If it is conditional, the loan will not be made unless certain conditions are fulfilled.
Comparables In a sales comparison appraisal, properties similar to the subject property that have recently been sold; the appraiser uses the sales price of the comparables as an indication of the value of the subject property.
Competitive Market Analysis (CMA A real estate agent's estimate of the value of a listed home, based on the sales prices or listing prices of comparable homes.
Condition A provision in an agreement that makes the parties' rights and obligations depend on the occurrence (or nonoccurrence) of a particular event. Also called a contingency clause.
Condominium A condominium is a unit of a multi-unit housing structure with a proportional interest in the common areas.
Conforming Loan A loan made in accordance with the standardized underwriting criteria of the major secondary market agencies, Fannie Mae and Freddie Mac, and which therefore can be sold to those agencies. A loan that does not meet the Fannie Mae/Freddie Mac standards is called a nonconforming loan.
Consideration Something of value given to induce another to enter into a contract. An agreement is not a legally binding contract unless the parties exchange consideration.
Construction Loan A loan to finance the cost of constructing a building, usually providing that the loan funds will be advanced in installments as the work progresses. Also called an interim loan, because it remains in force only until construction is completed. At that point, the construction loan is replaced with a take-out loan.
Consumer Price Index An index that tracks changes in the cost of goods and services for a typical consumer. Formerly called the cost of living index.
Conventional Loan An institutional loan that is not insured or guaranteed by a government agency.
Convertible ARM An adjustable rate mortgage that gives the borrower the option of converting to a fixed interest rate at certain times during the first years of the loan term.
Cost Approach to Value One of the three main methods of appraisal (along with the income approach and the sales comparison approach), in which an estimate of the subject property's value is arrived at by estimating the cost of replacing the improvements, then deducting the estimated accrued depreciation and adding the estimated market value of the land.
Credit Report A report prepared by a credit rating bureau that outlines the credit history of an individual or a business, showing the amount of debt, a record of repayment, and related information.
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 D
Debt Service The amount of money required to make the periodic payments of principal and interest on an amortized debt, such as a mortgage.
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. See Housing Expenses To Income Ratio.
Deduction An amount a taxpayer is allowed to subtract from his or her income before the tax on the income is calculated.
Deed In Lieu Of Foreclosure A deed given by a borrower to a lender, transferring title to the security property to the lender to satisfy the debt and avoid foreclosure.
Deed Of Reconveyance A document which acknowledges that a deed of trust has been paid in full, releasing the security property from the lien.
Deed Of Trust In many states, this document is used in place of a mortgage to secure the payment of a note.
Default Failure to fulfill an obligation, duty, or promise, as when a borrower fails to make payments or a tenant fails to pay rent.
Deferred Interest When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.
Deferred Maintenance Depreciation resulting from physical wear and tear.
Deficiency Judgment A court judgment ordering a debtor to pay the creditor the difference between the amount of the debt and the proceeds of a judicial foreclosure sale.
Delinquency Failure to make payments on time. this can lead to foreclosure.
Department Of Veterans Affairs ( An independent agency of the federal government which guarantees long term, low or no down payment mortgages to eligible veterans.
Depreciation A loss in value due to any cause.
Direct Endorser A lender authorized to underwrite its own FHA loan applications, rather than having to submit them to the FHA for approval.
Discount Points A percentage of the loan amount used to buy down an interest rate (buyer) or cover costs (seller).
Dividends Ongoing dividends received. You will need to provide signed income tax returns to verify dividend income.
Down Payment Money paid to make up the difference between the purchase price and the mortgage amount.
Due On Sale Clause A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
Duplex Any building containing exactly two dwelling units; most commonly refers to the units which are side by side with a common wall and roof.
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 E
Earnest Money A deposit that a prospective buyer gives the seller when the purchase and sale agreement is signed, as evidence of his or her good faith intention to complete the transaction.
Economic Life The period during which improved property yields a return over and above the rent due to the land itself; also called the useful life. Compare: Physical Life.
Encumber To place a lien or other encumbrance against the title to a property.
Entitlement The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.
Equal Credit Opportunity Act (EC Is 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 The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.
Equity Exchange When a buyer gives a seller real or personal property in addition to or instead of cash for the purchase price.
Escalation Clause A clause in a contract or mortgage that provides for payment or interest increases if specified events occur, such as a change in the property taxes or in the prime interest rate. Also called an escalator clause.
Escrow A system in which things of value (such as money or documents) are held on behalf of the parties to a transaction by a disinterested third party (the escrow agent) until specified conditions have been fulfilled.
Escrow Account An account held by the lender into which the home buyer pays money as tax or insurance payments. It is also where deposits are held pending a loan closing.
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 F
Fannie Mae The Federal National Mortgage Association (FNMA), a private corporation supervised by HUD; one of the three major secondary market agencies, along with Freddie Mac and Ginnie Mae.
Farmers Home Administration (FmH A federal agency within the Department of Agriculture, which makes loans in rural areas to people who are unable to obtain financing from private sources, and also insures loans made by private lenders. The loans may be used to purchase or develop farms, build or rehabilitate farm homes and other farm buildings, or develop rural housing for the elderly.
Federal Home Loan Mortgage Corpo Also called "Freddie Mac", is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration ( An agency within the Department of Housing and Urban Development that provides mortgage insurance to encourage lenders to make more affordable home loans.
Federal Reserve The government body that regulates commercial banks, and that implements monetary policy in an attempt to control the national economy.
FHA-Insured Loan A loan made by an institutional lender with mortgage insurance provided by the Federal Housing Administration, protecting the lender against losses due to borrower default.
FHLMC The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac".
Financial Statement A summary of facts showing the financial condition of an individual or a business, including a detailed list of assets and liabilities. Also called a balance sheet.
First Lien Position The position of lien priority held by a mortgage or deed of trust that has higher priority than any other mortgage or deed of trust against the property.
First Mortgage The mortgage (or deed of trust) against a property that has first lien position; the one with higher lien priority than any other mortgage against that property.
Fiscal Year Any twelve month period used as a business year for accounting, tax, and other financial purposes, as opposed to a calendar year.
Fixed Rate Mortgage A home loan with an interest rate that will remain the same rate for the life of the loan.
Foreclosure A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has failed to meet the terms of the mortgage.
Fourplex Any building containing exactly four dwelling units.
Functional Obsolescence Depreciation resulting from functional inadequacies, such as those caused by poor or outmoded design.
Funding Fee A charge, paid by a VA borrower at closing, which the lender submits to the VA.
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 G
Gift Funds Money given to a buyer, by a relative or approved non-profit organization, for the purpose of covering the costs to purchase a property.
Gift Letter A document in which a donor states that money given to a prospective borrower is not a loan and does not have to be repaid.
Ginnie Mae Also known as "GNMA" (Government National Mortgage Association), provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
Good Faith Estimate An estimate from an institutional lender that outlines the costs a borrower will incur during the process of buying a home.
Graduated Payment Mortgage (GPM) A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Gross Monthly Income An individual's income before income taxes have been deducted.
Gross Rent Multiplier (GRM) A figure used to estimate the value of residential rental property, determined by dividing the sales price by the monthly rental income.
Growing Equity Mortgage (GEM) A fixed rate loan with annual payment increases that are used to reduce the principal balance, so that the loan is paid off much more quickly than it would be with ordinary level payments.
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 H
Hazard Insurance Insurance against damage to real property caused by fire, flood, or other mishaps. Also called casualty insurance.
Highest and Best Use The use which, at the time of appraisal, is most likely to produce the greatest net return from the property over a given period of time.
Home Equity Loan A loan secured by the borrower's equity in property he or she already.
Homeowners Association A nonprofit association made up of homeowners in a subdivision, responsible for enforcing the restrictive covenants and managing other community affairs.
Housing Expenses To Income Ratio The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See Debt To Income Ratio .
HUD The Department of Housing and Urban Development, a cabinet level department of the federal government.
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Impound Account An escrow account maintained by a lender for paying property taxes and insurance premiums for the security property; the lender requires the borrower to make regular deposits, and pays the expenses out of the account when they come due. Also called a reserve account.
Income Property Property that generates rent or other income for the owner, such as an apartment building.
Index A published statistical report that indicates changes in the cost of money (market interest rates), used as the basis for interest rate adjustments in an ARM.
Installment An Installment loan, such as a student loan or car loan, is a debt that is regularly reported for a specific amount and for a specific term.
Interest A periodic charge a lender requires a borrower to pay in exchange for the loan, usually expressed as a percentage of the principal.
Interest Only Loan A loan that calls for payments of only the interest due during the loan term, so that the entire principal amount is due in one lump sum at the end of the term.
Interest Rate Cap A provision in an ARM that limits the amount that the interest rate may be increased (and in some cases, decreased).
Interim Financing A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Investment/Rental Property Property that you do not occupy which is rented, leased or used for other investment purposes.
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Jumbo Loan A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Junior Mortgage A mortgage that has lower lien priority than another mortgage against the same property. Sometimes called a second mortgage or secondary mortgage.
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Lease A contract in which one party (the tenant) pays the other (the landlord) rent in exchange for the possession of real estate.
Lease/Option A lease that includes an option to purchase the leased property during the term of the lease.
Lease/Purchase Contract A variation on the lease/option, in which the parties sign a purchase contract (instead of an option) and the prospective buyer leases the property for an extended period before closing.
Liability A debt or obligation; legal responsibility.
Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Listing A contract between a real estate broker and a property seller, by which the seller makes the broker his or her agent in order to put the property up for sale.
Loan Origination Fee The fee charged by a lender to prepare all the documents associated with your mortgage.
Loan-to-Value Ratio (LTV) The relationship between the loan amount and either the sales price or the appraised value of the property (whichever is less), expressed as a percentage.
Lock-In When a lender guarantees a loan applicant a particular interest rate if the transaction closes within a specified period.
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 M
Margin The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
MIP Mortgage insurance premium. Most often used to refer to the fee charged for FHA insurance coverage. The initial FHA premium is referred to as the OTMIP (one-time MIP) or the UFMIP (up-front MIP).
Mobil/Manufactured Homes which are not truly mobil but are constructed in the same manner as trailers, as opposed to conventional on-site construction.
Mortgage Broker An intermediary who brings real estate lenders and borrowers together and negotiates loan agreements between them.
Mortgage Company A type of real estate lender that originates and services loans on behalf of large investors (acting as a mortgage banker) or for immediate resale on the secondary market; not a depository financial institution.
Mortgage Insurance Insurance against losses resulting from mortgage default; if the borrower defaults and the lender takes a loss, the insurer will reimburse the lender for all or part of the loss.
Mortgage Loan A loan secured by a mortgage or a deed of trust.
Mortgagee The one who receives a mortgage from the mortgagor; the lender.
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 N
Negative Amortization Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
Net Worth An individual's personal financial assets, minus his or her total personal liabilities.
Nonconforming Loan A loan that does not meet the underwriting guidelines set by Fannie Mae and Freddie Mac, and therefore can't be sold to those agencies, except by special arrangement.
Note Rate The interest rate specified in the loan's promissory note; also called the coupon rate or the contract rate.
Notice of Default A notice sent by a lender (mortgagee or deed of trust beneficiary) to the borrower, informing the borrower that he or she has breached the terms of the loan agreement and warning that the lender is going to begin the foreclosure process.
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 O
One Year Adjustable Mortgage whose interest rate changes annually. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender, and restricted by periodic caps.
Open End Loan A loan that permits the borrower to re-borrow the money he or she has repaid on the principal, usually up to the original loan amount, without executing a new loan agreement; similar to a line of credit.
Option A contract that gives one party the right to do something (such as purchase a piece of property), without obligating him or her to do it.
Option Money The consideration paid a buyer/optionee that makes an option to purchase binding on the seller/optionor.
Option to Purchase An option giving the optionee the right to buy property owned by the optionor at an agreed price during a specified period.
Origination Fee The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Other Debt Other debt includes, but is not limited to, alimony, child support, maintenance, day care, current housing expense and investment housing expense.
Other Income Other income includes dividends/interest and second jobs. Second jobs only applies if continuous for 2 years and there is a likelihood that it will continue.
Over-improvement An improvement that is more expensive than the value of the land justifies.
Overtime Indicate overtime pay if it has been continuous for a long period of time, and if it will continue.
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