A

Adjustable Rate Mortgage (ARM)  -A mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.

Adjustment Date  -The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period  -The period that elapses between the adjustment dates for an adjustable rate mortgage (ARM).

Amenity  -A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

Amortization  -Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years).

Annual Percentage Rate (APR)  -Calculated by using a standard formula, the APR shows the cost of a loan expressed as a yearly interest rate; it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Application  -The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal  -A document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser  -A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Assessor  -A government official who is responsible for determining the value of a property for the purpose of taxation.

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

Assumable Mortgage  -A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and / or a credit package involved in the transfer of an assumable mortgage.

B

Balloon Mortgage  -A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10 years); after that time period elapses, the balance is due or is refinanced by the borrower.

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

Bankruptcy  -A federal law Whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Basis Point  -A basis point is 1/100th of a percentage point. For example, a fee calculated as 10 basis points of a loan amount of $100,000 would be 0.10% or $100.

Before-tax Income  -Income before taxes are deducted.

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.

Borrower  -A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

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 home before the present home is sold. Also known as "swing loan.

Budget  -A detailed record of all income earned and spent during a specific period.

Building Code  -Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

C

Cap  -A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Cash Reserves  -A cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

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

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

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

Certificate of Title  -A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Closing  -Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer; it is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing Costs  -Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing; these costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.

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.

Commission  -An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction.

Condominium  -A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.

Contract  -A final inspection that has not been turned down. VA final should have block A marked. FHA finals should be marked in block 14 and 17.

Conventional Loan  -A private sector loan, one that is not guaranteed or insured by the U.S. 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.

Credit Bureau Score  -A number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan. A credit score is just one of several factors that are used to evaluate a mortgage loan application.

Credit History  -History of an individual's debt payment; lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Report  -A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.

D

Debt-to-Income Ratio  -A comparison of gross income to housing and non-housing expenses; with the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed  -The document that transfers ownership of a property.

Deed-in-Lieu  -To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the home, but helps avoid the costs, time, and effort associated with foreclosure.

Default  -The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Delinquency  -Failure of a borrower to make timely mortgage payments under a loan agreement.

Detached Single-Family Home  -The most traditional type of Single-Family home. It stands separate from any other housing structure and serves as a place of residence for the occupants.

Discount Point  -Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Down Payment  -The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.

E

Earnest Money  -Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

Energy Efficient Mortgage  -Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase

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  -An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

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  -A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for, such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

F

Fair Housing Act  -A law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value  -The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fannie Mae  -Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Federal Housing Administration  -Federal Housing Administration; established in 1934 to advance homeownership opportunities within the United States; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

First Mortgage  -A mortgage that is the primary lien against a property.

Fixed-Rate Mortgage  -A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Flood Insurance  -Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure  -A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac  -Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers.

G

Ginnie Mae  -Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as with Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Good Faith Estimate  -An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

H

Home Equity Line of Credit  -A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

Home Inspection  -An examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.

Home Warranty  -Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; overage extends over a specific time period and does not cover the home's structure.

Homebuyer Education Learning Program  -Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the homebuying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium from 2.25% to 1.75% of the home purchase price.

Homeowner's Association  -A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowner's Insurance  -An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage.

Housing Ratio  -The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income.

HUD  -The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all U. S. residents; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD-1 Statement  -Also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. A separate number within a standardized numbering system represents each item on the statement. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.

I

Index  -A measurement used by lenders to determine changes to the interest rate charged on an adjustable rate mortgage.

Inflation  -When the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.

Interest  -A fee charged for the use of money.

Interest Rate  -The amount of interest charged on a monthly loan payment; usually expressed as a percentage. Insurance protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Interest-Only Loan Option  -Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period. 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.

Investment Property  -A property that is not occupied by the owner.

J-K

Judgment  -A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Jumbo Mortgage  -A loan that exceeds mortgage amount limits. Also called a nonconforming loan.

L

Lease Purchase  -Assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

LIBOR  -The London Interbank Offered Rate (LIBOR) is based on the interest rate that major international banks are willing to lend and borrow funds for a specified period of time in the London interbank market. The LIBOR is similar to the prime-lending rate posted by major U.S. banks. You can select an adjustable rate mortgage (ARM) that adjusts to the LIBOR at specified periods, usually every six months.

Lien  -A legal claim against property that must be satisfied when the property is sold.

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

Loan  -Money borrowed that is usually repaid with interest.

Loan-to-Value (LTV) Ratio  -A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.

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 in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period. The lock-in also usually specifies the number of points to be paid at closing.

Loss Mitigation  -A process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

M

Margin  -An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Mortgage  -A lien on the property that secures the promise to repay a loan.

Mortgage Banker  -A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.

Mortgage Broker  -An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

Mortgage Insurance  -A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.

Mortgage Insurance Premium (MIP)  -A monthly payment, usually part of the mortgage payment paid by a borrower for mortgage insurance.

Mortgage Modification  -A loss mitigation option that allows a borrower to refinance and / or extend the term of the mortgage loan and thus reduce the monthly payments.

N

Negative Amortization  -A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

No Cash-Out Refinance  -A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower's use (as long as the amount does not exceed 1% of the principal amount of the new mortgage).

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.

Note Rate  -The interest rate stated on a mortgage note.

O

Offer  -Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Origination  -The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination Fee  -The charge for originating a loan; is usually calculated in the form of points and paid at closing.

P

Payment Change Date  -The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Periodic Payment Cap  -For an adjustable rate mortgage (ARM), a limit on the amount those payments can increase or decrease during any one adjustment period.

Periodic Rate Cap  -For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

PITI  -Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

Planned Unit Development (PUD)  -A project or community that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

Points  -Charges levied by the mortgage lender and usually payable at closing.

Premium  -An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment  -Payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty.

Pre-Qualify  -A lender informally determines the maximum amount an individual is eligible to borrow.

Principal  -The amount borrowed from a lender; doesn't include interest or additional fees; the part of the monthly payment that reduces the remaining balance of the mortgage.

Private Mortgage Insurance  -Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Q

Qualifying Ratios  -Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations.

R

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

Real Estate Settlement Procedures Act  -Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Refinancing  -Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Rehabilitation Mortgage  -A mortgage that covers the costs of rehabilitating (repairing or improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Revolving Liability  -A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due

S

Sale-Leaseback  -A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

Settlement  -Another name for closing.

Special Forbearance  -A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate  -To place in a rank of lesser importance or to make one claim secondary to another. If you are refinancing your first mortgage and have an existing second or home equity line, one option is to subordinate the second mortgage.

Subordinate Financing  -Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

Survey  -A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat Equity  -Using labor to build or improve a property as part of the down payment.

T

Tenancy by the Entirety  -A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.

Tenancy in Common  -A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy.

Term  -The period of time that covers the life of the loan. For example, a 15 year fixed loan has a term of 15 years.

Title  -A legal document evidencing a person's right to or ownership of a property.

Title Insurance  -Insurance that protects the lender against any claims that arise from disputes about ownership of the property; also available for homebuyers.

Title Search  -A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Total Debt Ratio  -Monthly debt and housing payments divided by gross monthly income.

Truth-in-Lending  -A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

U

Underwriting  -The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

V-W-X-Y-Z

Department of Veterans Affairs  -Department of Veterans Affairs, a federal agency that guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

Misc

203(b)  -FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.

203(k)  -This FHA mortgage insurance program enables homebuyers to finance both the purchase of a home and the cost of its rehabilitation through a single mortgage loan.