Glossary of Real Estate Terms

“A” Loan or “A” Paper: Considered the best credit rating. FICO scores are generally 660 and up, with no late mortgage payments and less that one 30 day late revolving or installment loan payment. No bankruptcy within the past 2 to 10 years. Good or excellent credit during the last 2 to 5 years.

Abstract of Title: A complete historical summary of the public records relating to the ownership of a particular piece of land. It represents a short legal history of an individual piece of property, and traces the ownership of that property from the time of the first recorded transfer to the present.

Acceleration Clause: A provision written into your mortgage that gives the lender the ability to demand full payment if even one monthly payment is missed.

Additional Principal Payment: Payment beyond your scheduled principal payment, made to reduce the balance on the loan sooner than the schedule allowed for.

Adjustable-Rate Mortgage (ARM): A mortgage that allows the lender to change the mortgage’s interest rate. The rates, then,will move up and down according to the market.

Adjusted Basis: The cost of a property plus the value of improvement expenditures, minus depreciation.

Adjustment Date: The date when interest rates change in an adjustable–rate mortgage.

Adjustment Period: The time from one adjustment date to the next in an adjustable-rate mortgage.

Affidavit: A statement the buyer or seller may be asked to sign at the closing, attesting to certain information.

Affordability Analysis: An analysis done in order to figure out how expensive a house you can afford, taking into consideration your income and available funds, your liabilities, the house’s closing costs, taxes and location and the type of mortgage you plan to use.

Amenity: A property’s feature that is not essential to the home but increases the home’s value. This can be natural features like the view, or man-made features like a swimming pool.

Amortization: The repayment of a loan through installments where payments cover both the principal and interest to that the principal is paid down at regular intervals over time.

Amortization Schedule: The payment timetable in an amortized loan.

Amortization Term: The length of time it takes to amortize the mortgage loan, usually expressed in months. A 30-year fixed-rate

Annual Mortgage Statement: A report sent to the borrower each year showing how much was paid, as well as the remaining balance.

Annual Percent Rate (APR): The cost of a mortgage throughout the year including interest, mortgage insurance, and loan.

Annuity: The amount paid on a loan annually, often a set amount per year.

Appraisal: An analysis of a property’s fair market value, prepared by a qualified appraiser.

Appraiser: One who is trained and educated in the methods of determining the value of property (appraised value). You will pay a fee for an appraisal report containing an opinion as to the value of your property and the reasoning leading to this opinion.

Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience and analysis of the property.

Appreciation: The increase in a property’s value overtime. The opposite of depreciation.

Assessed Value: The property value as determined by a public tax assessor for taxation purposes. It is generally based on a percentage of the home’s market value. The process of obtaining this analysis is called an assessment.

Assessment: See assessed value.

Assessor: A public official who determines the assessed value of a home for taxation purposes.

Asset: Anything of monetary value that is owned by a person, ranging from property and personal items to loan, stocks or mutual funds.

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

Assumable Mortgage: A mortgage that can be transferred from the seller to the buyer.

Assumption Clause: The provision written into an assumable mortgage that allows for the transfer of a mortgage from seller to buyer.

Automated Underwriting: A computer based method that enables mortgage lenders to process loan applications more quickly by using credit-risk scores and other loan application data to make a recommendation on whether or not to extend a mortgage loan.

“B” Loan or “B” Paper: FICO scores from 620-659. Two30 day late mortgage payments and 2 to 3 late revolving or installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be 2 to 4 years since bankruptcy discharge. Higher numbers of continual or rolling late payments may be allowed. Also referred to as Sub-Prime.

Back-End Ratio: A ratio that compare the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans and other consumer loans) to gross monthly income.

Balloon Mortgage: A mortgage that will not pay off the entire loan by the end of the stated loan schedule. Instead, there is a provision in the loan that provides for a lump sum payment due at the end of the loan. For instance, you might pay only principal on a monthly schedule and then pay the interest at the end.

Balloon Payment: The final lump sum payment in a balloon mortgage, made at the maturity of the mortgage.

Bankruptcy: An alternative available to homeowners who are going through a severe financial crisis and are no longer able to pay their debts.

Bequeath: To transfer personal property through a will.

Bill of Sale: The written document transferring a title to a personal property.

Binder: A signed agreement, and the payment and the earnest money deposit, where a buyer agrees to purchase real estate.

Bi-Weekly Mortgage: A mortgage in which payments are made every two weeks instead of once a month. The basic result is that there are thirteen payments made during the year, reducing the principal and the time it takes to pay off a thirty year mortgage.

Blanket Insurance: A policy that covers either more than one piece of property or more than one person.

Blanket Mortgage: A mortgage that covers a cooperative project, as opposed to the share loans on individual units within the project.

Bona Fide: In good faith.

Breach: A violation of legal obligation.

Bridge Loan: A loan collateralized by the borrower’s present home, which is for sale, in order to allow the proceeds to be used for closing on a new house before their current residence is sold. Also called a swing loan.

Broker: A person who assists in negotiating contracts between parties for a fee.

Buy Down Account: An account that holds funds to be applied as part of the monthly mortgage payment.

Buy Down Mortgage: A mortgage where lump sum payments are made to reduce the interest rate over the life of a mortgage.

“C” Loan or “C” Paper: FICO scores typically from580-619. Three to four 30-day late mortgage payments and four to six 30-day later evolving or installment loan payments allowed; or two to four 60-day late payments. Should have 1 to 2 years since bankruptcy discharge. Continual or rolling late payments allowed. Also referred to as Sub-Prime.

Call Option: A provision in a mortgage allowing the lender to collect the balance of the loan at the end of a specified period for any reason.

Cap: A provision that limits how much the payments or interest rates can change in an adjustable-rate mortgage (ARM).

Capital Expenditure: The cost of any property or home improvement, whether it is to add value or to maintain the property.

Capital Gain: The profit received from the sale of an asset.

Capital Improvements: Improvements made to the property that may increase the market value of the home.

Cash-Out Refinance: When the money received from anew loan exceeds the amount needed to repay an existing loan, its closing costs, taxes and all other related expenditures.

Cash Reserve: A requirement of some lenders that buyers have a certain amount of cash remaining after closing (such as enough to make the first two mortgage payments).

Casualty Protection: Insurance coverage for damage to the house and its contents (personal property) and other structures or features of the property.

Certificate of Eligibility: A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.

Certificate of Reasonable Value (CRV): Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Certificate of Title: A certificate stating who real estate’s title is legally held by.

Chain of Title: The history of a real estate’s titles from the earliest documents until the most recent.

Chapter 7 Bankruptcy: The type of bankruptcy where homeowners are required to liquidate nonessential items of property in exchange for the cancellation of debt.

Chapter 13 Bankruptcy: The type of bankruptcy which allows homeowners to keep their property but requires them to repay at least some of their debts over a 3 to 5 year period.

Chattel: Personal property.

Clear Title: A property’s title without liens or unresolved questions regarding ownership.

Closing: The meeting when a property’s sale is finalized and the buyer sings the mortgage documents and pay closing costs. The ownership is then transferred from seller to buyer.

Closing Costs: Expenses beyond the price of the property that are related to transferring a property’s ownership including taxes, attorney fees, and origination fee, escrow, title insurance and a survey. Your realtor or lender should be able to estimate closing costs before you consider a purchase.

Cloud on the Title: Any condition which affect the clear title to real property.

Co-Borrower: An additional individual who is both obligated on the loan and is on title to the property.

Co-Maker: A person who signs a promissory note guaranteeing that the loan will be repaid. The borrower and co-maker are then both equally responsible for repayment. Also called endorser.

Collateral: An asset put up as a guarantee on a loan. If the borrower fails to repay the loan, he or she risks losing the asset.

Commission: The fee a broker or agent receives for negotiating a real estate sale or loan. Typically it is a percentage of the property or loan’s price.

Commitment Letter: A formal document provided by a lender stating a loan’s terms, and agreeing to lend it to a home buyers. Also known as a loan commitment.

Common Area Assessments: Charges paid to the Homeowners Association by the owners of the individual condominium units or planned unit development (PUD) and are generally used to maintain the property and common areas. Sometimes called Homeowners Association Fees.

Common Areas: Those portions of a building, land and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners association that are used by all of the unit owners who share in the common expenses of their operation and maintenance.

Comparable Market Analysis: An analysis that estimates the current market value of a home by comparing it with recently sold properties that are similar in size, location and amenities.

Compensating Factors: Evidence of ability and willingness to repay a loan when lacking traditional criteria. This may include consideration of non-traditional employment histories and the use of rent,utility or medical payments histories.

Condominium: A form of ownership in which the homeowner holds title to an individual dwelling unit and interest in the common elements that are owned jointly with the other condominium dwelling-unit owners.

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.

Contingency: A contingency is a clause in the purchase contract that describes certain conditions that must be met before the contract is binding.

Contract: An oral or written agreement to do or not to do a certain thing.

Conventional Mortgage: Any mortgage that is not insured or guaranteed by the federal government.

Convertible ARM: An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

Cooperative (co-op): A multi-unit housing complex where several individuals own share in a cooperative corporation that owns the property.

Cost of Funds Index (COFI): One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages.

Counter Offer: A response to a purchase offer that rejects all or part of the original purchase offer but continues the negotiations in an attempt to reach an acceptable sales contract.

Covenant: A clause in a mortgage that specifies certain restrictions that could result in foreclosure if violated.

Covenants: Specific agreements or regulations, which are legally enforceable and are transferred with the deed to the new owner,governing the use of a property. Discriminatory covenants are illegal and unenforceable. Also known as Covenants, Conditions and Restrictions (CC&R);Deed Restrictions; or Restrictive Covenants.

Credit: An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit History: A record of an individual’s repayment of debt.

Credit Bureau: A credit-reporting agency that provides financial information about potential borrowers to lenders. Information in a credit file is obtained from lenders, banks, court records and other sources.

Credit Report: A report prepared and maintained by credit bureaus, that contains information about a borrower’s credit history and status. A credit report will usually show over the past a7 years past loans,credit cards and payment patterns, and will include notice of any collections. The lender uses the information in a credit report to assess your creditworthiness.

Credit Report Fee: This fee covers the cost of a credit report which shows your credit history.

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 Score: A number calculated by computer software containing a scoring model. The score is based solely on information in the borrower’s credit report and represents a person’s likelihood of repaying the loan on time. Credit scores are based on information such as past payment behavior, level of indebtedness and length of credit history.

Creditor: A person to whom money is owed.

Debt: An amount owed to another.

Debt-to-Income Ratio: A ratio that measure total debt burden. It is calculated by dividing gross monthly debt repayments, including mortgages, by gross monthly income.

Deductible: The amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called “out of pocket expenses”.

Deed: A written document that shows ownership of property. In most cases, the home buyers receive the deed at the closing of the sale, subject to recording in the public record,when they become the true owners of the home. Also known as the Title.

Deed-in-Lieu: Short for”deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure.

Default: The inability to pay monthly mortgage payments according to the terms of the loan.

Delinquency: A loan in which payment has not been made by the due date.

Depreciation: The decline in a property’s value due to changes in market conditions, wear and tear on the property, or other factors. The opposite of appreciation.

Disclosures: Usually refers to providing information about a property for sale, especially as it represents actual or potential defect or problems. “Full disclosure” usually refers to the responsibility of the seller to voluntarily provide all known information about the property.

Discount Points: In the mortgage industry, this term is usually used only in reference to government loans, meaning FHA and VA loans. Discounts points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.

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

Due-on-Sale Clause: A term or condition in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

Earnest Money Deposit: Money you will out down to show that you are serious about purchasing the home. It often becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or may be forfeited if you do not follow through with the deal.

Easement: Allows people other than the owner to access a property.

Effective Age: The appraised estimate of a building’s physical condition. The effective age is not necessarily the home’s age.

Eminent Domain: The government’s right to take private property for public use. The home owner receives fair market value for the property.

Encroachment: Construction of a building, driveway, fence or other structure that extends over the legal property line or beyond the buildable space of the lot (inside the setbacks).

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

Equal Credit Opportunity Act(ECOA): A federal law that requires lenders and other creditors to make credit equality available without discrimination based on race, color,religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity: In an owned property it is the difference between the fair market value of the property and the remaining balance of its mortgage.

Escape Clause: A clause in the purchase contract that requires the buyer to respond to changed circumstances of the sale within a set time period or the contract is voided.

Escrow: When a buyer’s deposit or payment is left with a third party after a sale has been agreed upon but before all conditions of the sale has been met.

Escrow Account: Money in impound account in which a portion of your monthly mortgage payment is deposited to cover annual charges for homeowner’s insurance, mortgage insurance(if applicable), and property taxes.

Escrow Agent: A person or entity holding documents and funds in a transfer of real property, acting for both parties pursuant to instructions

Escrow Analysis: Once each year, your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow Disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance and other property expenses as they become due.

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 title of a property from the public records or an abstract of the title.

Exclusive Listing: A legal contract giving a real estate agent the exclusive right to sell a property for a specified time.

Executor: A person named in a will to administer an estate. The court will appoint an administrator if no executor is named.

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 Housing Act: Title VIII of the Civil Rights Act of 1988 prohibits discrimination in housing because of race, color, national origin, religion, sex, handicap or familial status.

Fair Market Value: The highest price a typical buyer would pay, and the lowest a seller would accept.

Fannie Mae: The Federal National Mortgage Association, a major national investor in home loans. A private corporation created by Congress to support the secondary mortgage market and increase the availability and affordability of home loans for low,moderate, and middle income Americans. Also known as a Government Sponsored Enterprise (GSE).

Federal Housing Administrator (FHA): The part of the U.S. Department of Housing and Urban Development (HUD) that focuses on insuring residential mortgage loans made by private lenders, and sets standards for constriction and underwriting. While a loan with FHA insurance is called a ‘government mortgage’ sometimes, the FHA does not lend money or construct homes itself.

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

Firm Commitment: A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage: The mortgage that has first claim in the event of default.

Fixed Installment: A monthly mortgage payment that includes the payment of both principal and interest.

Fixed-Rate Mortgage (FRM): A mortgage where the interest rate will not change during the life of the loan.

Fixture: Personal property that becomes real property when attached in a permanent manner to real estate.

Float: The act of allowing an interest rate and discount points to fluctuate with changes in the market.

Flood Certification Fee: A fee for the assessment of your property to determine if it is located in a flood prone area.

Flood Insurance: Insurance that is required on homes located in a flood plain.

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

Forfeiture: The loss of property, money or rights due to a breach of legal obligation.

Fully Amortized Adjustable Rate Mortgage: An adjustable-rate mortgage (ARM) with a monthly payment sufficient to amortize the remaining balance, at the interest accrual rate,over the amortization term.

FSBO (For Sale by Owner): A home that is offered for sale by the owner without the benefits of a real estate professional.

Good Faith Estimate (GFE): An estimate of the settlement charges you are likely to incur; it also contains other information about the loan.

Government Mortgage: A mortgage that is insured or guaranteed (but not funded by) the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the Rural Housing Service (RHS). Also known as a guaranteed loan.

Government Recording and Transfer Charges: Fees for legally recording your deed and mortgage. These fees may be paid b you or by the seller depending upon the terms of the sales agreement.

Grantee: The person to whom an interest in real property is conveyed.

Grantor: The person conveying an interest in real property.

Growing-Equity Mortgage: A fixed rate mortgage that automatically increases your payments over time in order to pay off the principal more quickly.

Hazard Insurance: Insurance that covers physical damage to a property. It might include flood, wind, fire,vandalism or other hazards, but varies from plan to plan.

Home Equity Loan: A secondary mortgage loan where the amount of the loan is based on the borrower’s current equity in a property.

Home Inspection: A professional inspection of the mechanical, electrical and structural aspects of your home. You will pay a fee for this inspection, and the inspector will provide you a written report evaluating the condition of the home.

Homeowners’ Association: A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project.

Homeowner’s Insurance or Home Hazard Insurance: An insurance policy that protects your home and your possessions inside from serious loss, such as theft or fire. This insurance is usually required by all lenders to protect their investment and must be obtained before closing on your loan.

Homeowner’s Warranty: A type of insurance often purchased by home buyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period.

Homestead Credit: Property tax credit program, offered by some state governments that provide reductions in property taxes to eligible households.

HUD-1 Settlement Statement: A statement that itemizes the services provided to you and the fees charged for those services. This form is filled out by the person who will conduct the settlement. You can ask to see your settlement statement at least one day prior to your settlement.

Income Property: Real estate that has been either developed or improved to produce income.

Inflation Coverage: Endorsement to a homeowner’s policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home’s value. This type of coverage does not adjust for increases in the home’s value due to improvements.

Initial Interest Rate: The interest rate at the time of closing. Also called a “start rate” or “teaser”.

Installment Loan: A loan that is repaid in equal, regularly scheduled installments.

Insured Mortgage: A mortgage protected by either a private mortgage insurance company or by the Federal Housing Administration (FHA).

Interest: A fee charged by the lender for the use of its money.

Interest rate: The charge by the lender for borrowing money expressed as a percentage.

Interest Rate Buy Down Plan:This plan allows you to deposit money into an account. The account releases payments each month to reduce monthly mortgage payments during the first few years of payments.

Interest Rate Ceiling: The maximum interest rate an adjustable-rate mortgage (ARM) can rise to as specified by the mortgage agreement.

Interest Rate Floor: The minimum interest rate an adjustable-rate mortgage (ARM) can loser to as specified by the mortgage agreement.

Joint Tenancy: A form of co-ownership. It gives both parties equal interest and equal rights in the property.

Judicial Foreclosure: Some states use foreclosure proceedings that are handled as a civil lawsuit,conducted entirely under the direction of a court.

Late Payment Charges: The penalty a homeowner must pay when a mortgage payment is made after the due date grace period.

Lease-Purchase Mortgage Loan: A financing option offered by some nonprofit organizations that allows lower income home buyers to lease a home with an option to buy. Monthly rent includes principal, interest, taxes and insurance payments, which is applied to the mortgage, plus an amount that is automatically deposited into a savings account for a down payment.

Leasehold Estate: Along-term lease where the mortgagor holds the title to a property but does not actually own it.

Lender: A term which can refer to the institution making the loan or to the individual representing the firm.

Lender Inspection Fees: This charge covers inspections, often of newly constructed housing, made by employees of your lender or by an outside inspector.

Liabilities: This includes all financial obligations, including long and short-term debt.

Liability Insurance: Insurance that protects against claims alleging that negligence or inappropriate action resulted in bodily injury or property damage to another party.

Lien: A legal claim against a property. It must be paid off before a property can be sold.

Life Cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

Line of Credit: When a financial institution or bank extends credit. It is always for a specific amount and a limited time.

Liquid Asset: An asset that is easily converted into cash.

Listing Agreement: A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Loan: Borrowed money,also called principal.

Loan Acceleration: An acceleration clause in a loan document is a statement in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Loan Origination Fee: A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan.

Loan Servicer: The Company that collects monthly mortgage payments and disperses property taxes and insurance payments.

Loan to Value (LTV) ratio: A percentage calculated by dividing the amount to be borrowed by the price or appraised value of the home to be purchased (whichever is less). The loan to value ratio is used to qualify borrowers for a mortgage, and the higher the LTV, the tighter the qualification guidelines for certain mortgage programs become. Low loan to value ratios are considered below 80%, and carry lower rates since borrowers are lower risk.

Lock-In: A guarantee by a lender that a specified interest rate will not go up as long as the property closes within a set period of time. Also called a rate lock.

Lock-in Period: The time period during which the lender has guaranteed an interest rate to a borrower.

Margin: The spread between the index rate and the ARM rate.

Market Value: The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Maturity: The date the remaining principal balance of a loan becomes due.

Mitigation: Term usually used to refer to various changes or improvements made in a home.

Modification: When a lender agrees to modify the terms of your mortgage without requiring you to refinance.

Mortgage: The transfer of an interest in property to a lender as a security for a debt. This interest may be transferred with a Deed of Trust in some states.

Mortgagee: The mortgage lender.

Mortgage Broker: A company or individual who, for a fee or commission, brings borrowers and lenders together.

Mortgage Insurance: Insurance for the lender against the mortgagor’s default covering some or the entire loan. This insurance is issued by either a private company or a government agency like the Federal Housing Administration (FHA).

Mortgage Insurance Premium(MIP): The fees paid by a FHA borrower for mortgage insurance.

Mortgage Interest Deduction:The interest cost of a mortgage, which is a tax-deductible expense.

Mortgage Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.

Mortgage Score: A score based on a combination of information about the borrower that is obtained from the loan application, the credit report and property value information. The score is a comprehensive analysis of the borrower’s ability to repay a mortgage loan and manage credit.

Mortgagor: The mortgage borrower.

Multifamily Mortgage: A residential mortgage where the dwelling has more than four families (such as an apartment complex.) These dwellings are often called multifamily properties.

Negative Amortization: When monthly mortgage payments are not large enough to cover the entire principal and interest due. The shortfall is added to the balance of the loan.

Net Worth: A person’s assets minus all liabilities.

No Cash-Out Refinance: A refinance transaction where the new mortgage only includes the remaining balance of the existing mortgage, closing costs, points, any mortgage liens more than one year ole (but only if the borrower chooses to pay them off), but no cash beyond 1 percent of the new mortgage.

No Cost Loan: Many lenders offer loans that you can obtain at “no cost”. You should determine whether this means there are no “lender” costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance, such as title insurance, escrow fees, settlement fees, appraisal,recording fees, notary fees and others.

Notary Public: A public official who attests or certifies that documents, including signatures, are authentic. A notarized document will bear the signature of the notary and the stamp and/or expiration date of the notary’s authority.

Note: A legal document that states the terms of a mortgage.

Note Rate: The interest rate as stated.

Notice of Default: A formal written notice that a loan is in default and legal action might betaken.

Original Principal Balance: The total amount of principal owed on a mortgage before any payments are made.

Origination Fee: A fee charged to the borrower by the loan originator for processing a loan application.

Origination Services: Any service involved in the creation of a mortgage loan, including but not limited to the taking of the loan application, loan processing, and the underwriting and funding of loan and the processing and administrative services required to perform these functions.

Owner Financing: This is when the property seller provides all or part of the financing.

Owners Policy: The insurance policy that protects the buyer from title defects.

Partial Payment: A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

Payment Cap: The limit placed on the amount that payments can increase or decrease during the life of an adjustable-rate mortgage (ARM). This can be set as a Lifetime or Periodic Cap.

Payment Shock: A scenario in which monthly mortgage payments on an adjustable rate mortgage(ARM) rise so high that the borrower may not be able to afford the payments.

Personal Property: Any property that is not real property.

Pest Inspection: An inspection for termites or other pest infestations of your home. This inspection is frequently required by your lender.

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 goes into an escrow account to cover the fees when they are due.

PITI Reserves: A predetermined amount of cash determined by the lender and expressed in a number of months, that insures that a hope buyer can pay PITI costs during those coming months.

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

Point(s): Amount of money paid to reduce the interest rate on a loan. A point is usually equal to1% of the loan amount.

Power of Attorney: Authorizes one person to act on another’s behalf. This can be limited to certain times and circumstances or be all-inclusive.

Pre-Approval: The process of applying for a loan and obtaining approval for a maximum loan amount before having a purchase agreement.

Pre-foreclosure Sale: When an investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount still owed.

Pre-paid items: Lenders often require the prepayment of items such as insurance premiums for private mortgage insurance, homeowner’s insurance and real estate taxes.

Prepayment Penalty: A fee charged if the mortgage loan is paid before the scheduled due date.

Pre-qualification: This refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan after the loan officer has made inquiries about debt,income and savings.

Prime Rate: The lowest interest rate a bank can offer. It is offered to their preferred clients only but sets the standard for others.

Principal: The outstanding balance of a loan. Also refers to the part of a monthly payment that goes directly to that balance (rather than interest, taxes or insurance.)

Principal Balance: The outstanding balance of principal on a mortgage.

Private Mortgage Insurance(PMI): Insurance that protects your lender if you default on your loan. With conventional loans, mortgage insurance is usually required if you do not make a down payment of at least 20% of your home’s appraised value. Your lender may require payment of your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan in advance at settlement. The same insurance protection on an FHA loan is called Mortgage Insurance Premium (MIP).

Promissory Note: A written promise to repay a loan within the specified time period and conditions.

Property Tax: A tax charged by the local government and used to fund a variety of municipal services such as schools, police or street maintenance.

Punch List: A list of items that have not been completed at the time of the final walk-through of a newly constructed home.

Purchase and Sale Agreement:A written contract stating the terms and conditions of a sale, signed by owner and buyer.

Qualifying Ratios: Includes two calculations used to determine whether a borrower can qualify for a loan:housing expense as a percent of income and total debt as a percent of income.

Quitclaim Deed: A deed that transfers the ownership of the property but does not make any guarantee of clear title.

Rate Cap: The limit places on the amount that the interest rate can increase or decrease in an adjustable-rate mortgage (ARM). This can be set as a Lifetime or Periodic Cap.

Rate-Improvement Mortgage: A fixed-rate mortgage that gives the borrower a one-time option to reduce the interest rate during the early years of the mortgage term without refinancing.

Rate Lock: A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

Real Estate Agent: A licensed professional trained to negotiate and transact a real estate sale.

Real Estate Settlement Procedures Act (RESPA): The law requiring lenders to give borrowers notice of closing costs before a sale is made.

Real Property: Land and appurtenances, including anything of a permanent nature such as structures,trees, minerals, and the interest, benefits and inherent rights thereof.

Realtor: A real estate broker or associate affiliated with the National Association of Realtors.

Recorder: The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

Recording: The noting in the registrar’s office of the details of a properly executed legal document.

Recording and Transfer Charges: These charges include fees paid to the local government for filing official records of a real-estate transaction.

Refinance: Paying off one loan with the proceeds of a new loan on the same property.

Rehabilitation Mortgage: A mortgage obtained for renovation or home improvement.

Reinstatement Period: One of the phases of foreclosure, during which the homeowner has the opportunity to stop the foreclosure process by paying the money that is owed to the lender or servicer.

Remaining Term: The original amortization term minus the number of payments that have been applied.

Rent Loss Insurance: A form of insurance that protects a landlord against loss of rent, fire or other hazard that might create a situation where the tenant is excused from paying rent.

Repayment Plan: A plan arranged between lender and borrower to repay a defaulted loan. Also called relief provisions.

Replacement Reserve Fund: A commonly used fund set aside for short term work –common room furniture,roofing, etc.

Rescission: The cancellation of a contract by law or mutual consent. Borrowers often have the legal ability to cancel a refinancing within three business days of closing.

Revolving Liability: The most common revolving liability is a credit card. This is an arrangement that allows a person to borrow against a pre-approved line of credit for short term purposes.

Right of First Refusal: An agreement requiring the property owner to give another party the first opportunity to purchase or lease the property before offering it to others.

Right of Ingress or Egress: The right to enter or leave a premise.

Right of Survivorship: In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Sales Agreement: The contract signed by a buyer and the seller stating that the terms and conditions under which a property will be sold. It may also be called an “Agreement of Sale” or “Purchase Contract”.

Sale-Leaseback: This is when a property is sold but the buyer simultaneously leases the property back to the seller.

Second Mortgage: A mortgage that has a second, subordinate lien.

Secured Loan: A collateral-backed loan.

Security: The property that will be pledged as collateral for a loan.

Seller Take-Back: An agreement in which the owner of a property provides second mortgage financing,often in combination with an assumed mortgage in lieu of a portion of the seller’s equity.

Servicer: An organization collects mortgage payments and manages escrow accounts.

Setback: The distance between the property line and the allowable buildable space. Setbacks are used to assure adequate space between buildings and from the road for a variety of purposes, including drainage, utility and emergency access and neighborhood quality.

Settlement: 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 received title from the seller.

Settlement/Closing Agent: In some states, a settlement agent, or closing agent, handles the real estate transaction when you buy or sell a home. It may also be an attorney or a title agent. He or she oversees all legal documents, fee payments, and other details of transferring the property to ensure that the conditions of the contract have been met and appropriate real estate taxes have been paid.

Settlement Costs/Closing Costs: The customary costs above and beyond the sales 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 at the time the GFE is given.

Settlement Statement: This document is required by the Real Estate Settlement Procedures Act (RESPA) and is an itemized statement of services and charges relating to the closing or settlement of the property transfer. This is also called the HUD – 1 Settlement Statement.

Short Sale: When the lender agrees to accept a mortgage payoff that doesn’t cover the outstanding loan.

Single-Family Properties: Properties with only 1 to 4 units.

Step-Rate Mortgage: A mortgage where the interest rate increases according to a predetermined schedule, resulting in increased payments until all scheduled increases have been met.

Subdivision: A tract of land that has been divided into individual lots for lease or sale.

Subordinate Financing: Any lien that is subordinate to the first mortgage.

Subsidized Second Mortgage: A second mortgage issued to lower income households by a state, county or local housing agency, foundation or nonprofit corporation, at the same time a first mortgage is being purchased. The second mortgage’s payments are often deferred and have little or no interest rate.

Survey: A map showing the legal boundaries of a property as well as man-made or natural physical features.

Survey Fee: A fee for obtaining a drawing of your property showing the location of the lot, any structures, and any encroachments. The survey fee is usually paid by the borrower.

Sweat Equity: Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

Tax certificate:Official proof of payment of taxes due provided at the time of transfer of property title by the state or local government.

Tax Service Fee: This fee covers the cost of your lender engaging a third party to monitor and handle the payment of your property tax bills. This is done to ensure that your tax payments are made on time and to prevent tax liens from occurring.

Tenancy in Common: As opposed to joint tenancy, when there are two or more individuals on a title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.

Tenant-Stockholder: A stockholder and tenant in a cooperative corporation that is under a proprietary lease or occupancy agreement.

Third-Party Organization: When a lender uses a third party to originate, process, underwrite, close, fund or package a second mortgage. Also see mortgage broker.

Title: The legal document stating a person’s ownership or right to a property which is recorded and made part of the public record.

Title Company: A company that specializes in insuring and examining real estate titles.

Title Defect: An outstanding claim or encumbrance on a property that limits the marketability or sale of the property. Sometimes referred to as a cloud on the title.

Title Insurance: Insurance that protects your lender against any title dispute that may arise over your property. Through a title search, the lender verifies who the actual property-owners are and whether the property is free of liens. The title search company then issues title insurance which protects the title of the property against any unpaid mortgages and judgments. In case a claim is made against the property, the title insurance provides legal protection and pays for court fees and related costs. You may also purchase Owner’s title insurance which protects you as the homeowner.

Title Search: A records search to ensure that the property is owned by the seller and to see what liens or outstanding other claims there are on the property.

Title Service Fees: Title service fees include charges for title search and title insurance if required. This fee also includes the services of a title of settlement agent.

Tolerance Category: The maximum amount by which the charges for a category or categories of settlement cost may exceed the amount of the estimate for such category or categories on a good faith estimate. When the originator selects and identifies the provider of services, these charges may only increase 10% in the aggregate. If the borrower selects a provider that is not on the written list provided by the loan originator, the lender is not subject to any tolerance restrictions for that service.

Total Expense Ratio: Total obligations as a percentage of gross monthly income, including housing expenses and other debts.

Transfer of Ownership: Any means by which the ownership of a property changes hands.

Transfer Tax: State and other taxes owed when a title is passed on to a new owner.

Treasure Index: An index based on the fair market value of U.S. Treasury bills. The index is used to determine interest rate changes.

Trustee: A person who legally controls someone else’s property for their benefit.

Truth-In-Lending: A federal law requiring lenders to disclose the full terms and conditions of a mortgage, and all charges included, in writing.

Two-Step Mortgage: An adjustable-rate mortgage (ARM) that offers one interest rate for the first five or seven years, and a different one for the remainder of the loan’s term.

Underwriting: The analysis of a borrower’s credit, and the property’s fair market value, to determine the risk involved for the lender.

Unsecured Loan: A loan that is not backed by collateral.

Up-front Charges: The fees charged to homeowners by the lender or servicer at the time of accepting a mortgage loan. These include points, broker’s fees, insurance and other charges involved in the transaction.

Veteran’s Administration(VA): An agency of the federal government that guarantees residential mortgages make to eligible veterans of the military services.

VA Mortgage: A mortgage guaranteed by the Department of Veterans Affairs (VA). Also see government mortgage.

Variance: A special suspension of zoning laws to allow the use of property in a manner not in accord with existing laws.

Walk Through: A final inspection of the property by the buyer and the buyer’s agent to determine that the property is as described in the purchase agreement.

Warranty Deed: A legal document that includes the guarantee that the seller is the true owner of the property and has the right to sell the property and that there are no claims against the property.

Wraparound Mortgage: A mortgage that includes two mortgages: the remaining balance of an existing first mortgage, and an additional amount. The homeowner pays for both mortgages in one payment, to the Wraparound Mortgage, and the money owed to the first mortgage is distributed from there.

Zoning: Zoning laws are local laws that are established to control and guide the uses of land within a particular zone.

Types of Mortgage Loan Products

Adjustable Rate Mortgage(ARM): A mortgage loan or Deed of Trust which allows the lender to periodically adjust the interest rate in accordance with a specified index.

Balloon Mortgage: A balloon payment is due on a mortgage that usually offers a low monthly payment for an initial period of time. After that period of time elapses, the balance must be paid by the borrower or the amount must be refinanced. The large sum payable at the end of the loan term is called the “balloon payment”.

Construction Loan: A short-term, interim loan for financing the cost of construction; the lender advances funds to the builder at periodic interval as work progresses.

Conventional Loan: A private sector loan which is not guaranteed or insured by the U.S. government.

Convertible ARM: An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

Fannie Mae: The Federal National Mortgage Association, a major national investor in home loans. A private corporation created by Congress to support the secondary mortgage market and increase the availability and affordability of home loans for low,moderate, and middle income Americans. Also known as a Government Sponsored Enterprise (GSE).

FHA/HUD Insured Mortgages: A mortgage insured by the Federal Housing Administration of the US Department of Housing and Urban Development and made by an approved lender or servicer in accordance with the FHA/HUD regulations.

Fixed-Rate Mortgage: a mortgage with an interest rate that does not change over the life of the loan,and as a result, monthly payments of principal and interest to not change.

Fully Amortized Adjustable Rate Mortgage: An adjustable-rate mortgage (ARM) with a monthly payment sufficient to amortize the remaining balance, at the interest accrual rate,over the amortization term.

Government Mortgage: A mortgage that is insured or guaranteed (but not funded by) the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the Rural Housing Service (RHS). Also known as a guaranteed loan

Hybrid Arms: these loans are a mix or hybrid of a fixed-rate period and an adjustable-rate period. For example, a 3/1 ARM will have a fixed interest rate for the first three years and then will adjust annually until the loan is paid off. The first number tells you how long the fixed interest-rate period will be and the second number tells you how often it will adjust after the initial period.

Interest Only ARMS: an interest-only (I-O) ARM payment plan allows you to pay only the interest for a specified number of years, typically between 3 and 10 years. This allows you to have smaller payments for a period of time. After that, your monthly payments will increase, even if the interest rate stays the same, because you must start paying back the principal as well as the interest each month.

Step-Rate Mortgage: A mortgage where the interest rate increases according to a predetermined schedule, resulting in increased payments until all scheduled increases have been met.

VA Mortgage: A mortgage guaranteed by the Department of Veterans Affairs (VA). Also see government mortgage