GLOSSARY

Abstract of title
A written history of all the transactions that bear on the title to a specific piece of land. An abstract of title covers the time from when the property was first sold to the present. Used by the title company or closing attorney to produce a title binder.

Adjustable-rate mortgage (ARM)
A mortgage whose interest rate changes periodically based on the changes in a specified index. View a list of common indices.

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

Amortization Schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made. 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.

Application
A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective borrower and the proposed subject property.

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

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

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, bank accounts, stocks, mutual funds, and enforceable claims against others.

Assignment
The transfer of a mortgage from one person to another.

Assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold. Not a very common product.

Back-end ratio or back ratio
The sum of the house payment and all other monthly debt— credit cards, car payments, student loans and the like —divided by gross monthly income. Traditionally, lenders would not extend credit to borrowers with back-end ratios past 36 percent, but they often do now.

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.

Balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

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.

Bridge loan
A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

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 buydown will sometimes be offered as an incentive by a builder or a seller to make the terms of a purchase more attractive.

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

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.

Chain of title
The recorded history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Chapter 7
The chapter of the Bankruptcy Code providing for "liquidaton," i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.

Chapter 11
A reorganization bankruptcy, usually involving a corporation or partnership. (A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in Chapter 11.)

Chapter 13
The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)

Chattel
Another name for personal property.

Clear title
A title that has been researched and is found to be free of liens or legal questions as to ownership of the property.

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

Closing cost item
A fee or amount that a borrower must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items and are included as numbered items on the HUD-1 statement. Closing costs normally include an origination fee, an attorney's fee, courier fee, flood certification fee, recording fees, amounts placed in escrow for taxes and insurance, and charges for obtaining title insurance and a possibly survey. Closing costs percentage will vary according to the area of the country.

Closing statement
Also referred to as the HUD-1 Settlement Statement. The final statement of costs incurred to close on a loan or to purchase a home.

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

Combination loan
With this type of loan, you receive a first mortgage for 80 percent of the property value, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans--known as 80/10/10 loans or 80/20's. Also known as a Piggy Back loan.

Combined loan-to-value (CLTV)
The unpaid principal balances of all the mortgages on a property (first and second usually) divided by the property's appraised value.

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. The debt will show on both party’s credit report. Also known as a Co-Signer.

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

Comparables
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties most similar to the subject property; 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.

Conforming loan
The current conforming loan limit is $322,700 and below. Conforming loan limits change annually. Any amount above the limit is considered a Jumbo Loan.

Construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer reporting agency (or bureau)
An organization or company that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

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.

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

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 history
A record of an individual's payment history on open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

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.

Credit repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Credit Scores
Grades ranging between 400 and 850 assigned to individuals based on their repayment history. Typically an individual will have three scores, one from each of the three major credit bureaus: Experian, Transunion, and Equifax.

Debt-to-income ratio (also referred to as DTI)
The percentage of before-tax earnings that are spent to pay off loans for obligations such as auto loans, student loans and credit card balances. Lenders look at two ratios. The front-end ratio is the percentage of monthly before-tax earnings that are spent on house payments (including principal, interest, taxes and insurance). In the back-end ratio, the borrower's other debts are factored in.

Deed
The legal document conveying title to a property.

Deed-in-lieu-of
A deed given by a mortgagor to the mortgagee 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 Clause
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 a potential home buyer 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.

Eminent Domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

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

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 in value 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 account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property taxes and insurance when they become due.

Escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay property taxes, insurance, and other bills when due.

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.

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

Eviction
The lawful expulsion of an occupant from real property.

Examination of title
The report on the chain of 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
Fannie Mae is a private, shareholder-owned company whose stock is traded on the New York Stock Exchange (Symbol FNM). Fannie Mae is NOT part of the government. The company was created in 1938 with the responsibility of creating a secondary market for home mortgages and operated under direct federal control. It was privatized by legislation enacted in 1968 and became fully private in 1970.

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 home-buyer 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 plan or construct housing.

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

Fee Simple Estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

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
A legal process whereby 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.

Fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Good faith estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing Grantee
The person to whom an interest in real property is conveyed.

Grantor
The person conveying an interest in real property.

Hazard insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy. Also known as Homeowner’s Insurance.

Home equity line of credit
Credit line that is secured by a second mortgage on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.

Housing ratio
The ratio of the monthly housing payment (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
U.S. Department of Housing and Urban Development.

Index
A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).

Impound Account
See Escrow Account.

Interest-only loan
Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power.

Joint Tenants with Right of Survivorship
Ownership by two people (usually spouses) in which each person owns an undivided interest in the entire property. When one joint tenant dies, the other has title to the entire property. (JTWROS)

Jumbo mortgage
Loan amounts above the current conforming loan limit of $322,701 are considered non-conforming or jumbos mortgages and are usually subject to higher pricing.

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

Lender
The bank or mortgage company offering a mortgage loan.

LIBOR
LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with other popular ARM indexes like the Treasury bill.

Lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Loan to value ratio (LTV)
The unpaid principal balance of the mortgage on a property divided by the property's appraised value. 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 period
The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.

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.

Margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. MI or PMI is usually required for loans with an LTV of 80.01% or higher. A higher LTV requires a higher MI premium.

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

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

No income verification
See "stated income".

Non-conforming 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 slightly higher rate . The current non-conforming loan limit is $322,701 and above.

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. A Note is signed by the borrower along with other documents at a loan closing.

Origination fee
A fee imposed by a mortgage broker to cover 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.

Periodic cap
The maximum rate increase for a specific period for an adjustable rate mortgage.

PITI
Acronym for “Principal, interest, taxes and insurance,” the components of a monthly mortgage payment. Points
One point represents 1% of the face value of the mortgage loan. Points are paid to the Lender at closing to buy down the interest rate.

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, interest, 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 on a mortgage loan. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Qualifying ratios
The ratio of fixed monthly expenses to gross monthly income, used to determine how much a person can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

Rate
The annual rate of interest on a loan, expressed as a percentage of 100.

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

Rebate
Compensation received from a wholesale lender, which can be used to cover closing costs of the borrower or to partially offset other chareges.

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

Second mortgage
A loan using a home's equity as collateral and which is subordinate to the first mortgage (i.e., the first mortgage has priority before all others).

Servicer
An organization that collects monthly mortgage principal and interest payments from homeowners and manages escrow accounts for paying taxes and homeowners' insurance premiums. The servicer and the lender are sometimes the same.

Settlement statement
A document that details who has paid how much to whom. Also known as the HUD-1 Settlement Statement.

Stated income
Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns or pay stubs.

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.

Tax lien
A claim, or obstacle, to the sale of property because of unpaid taxes. The property's title can't be transferred until liens are paid.

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.

Term
The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years.

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.

Title search
An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.

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

Transfer tax
A levy by a state or local government on the changing of ownership of real estate.

Treasury index
A table of yields being paid on government debt, used to determine interest-rate changes for adjustable-rate mortgages and other variable rate loans.

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.

Underwriting
The process by which a lender decides whether to loqn money, based on the value of the property, the borrower's credit history and any other relevant factors.

Variable interest rate
Percentage that a borrower pays for the use of money and which moves up or down periodically based on changes in other interest rates.

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

Wall Street Journal prime rate
The fluctuating prime rate published in the Wall Street Journal, which surveys several banks to arrive at its number.

Zero-lot line
Placement of a house on a lot so that one wall is on the property boundary

Zoning
Areas within a local government's jurisdiction in which certaian types of land uses are allowed. For example, a zoning ordinance might permit houses but not factories in a neighborhood.

Zoning variance
An exception allowed in a zoning ordinance, granted case-by-case by local government.