Abandonment
When the owner of a home decides to voluntarily surrender or abandon their rights to the property. This does not however, release them from the obligation of the mortgage they may still have for the property.
Abatement
The end, reduction, or lessening of something. With respect to mortgages, it usually relates to the reduction of tax payments or mortgage payments.
Abrogate
To repeal or do away with, can also be to withdraw or cancel.
Absolute Title
A clear title, without any judgments or liens present.
Abstract Update
Bringing an existing Abstract of Title current and up to date.
Acceleration
When a mortgagee (lender) demands immediate repayment of the mortgage in full after the mortgagor (borrower) defaults on said mortgage.
Act of God
Destruction that is caused by natural forces and cannot be prevented.
Addendum
An addition to an executed contract or agreement.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is not fixed and is free to adjust periodically based on a preselected index. These mortgages may come with a fixed rate for a short period but will ultimately convert to a variable or adjustable rate after the initial fixed period.
Adjustment Date
The date when an adjustable rate mortgage’s interest rate will change
Adjustment Interval
The time in between changes of the interest rate on an adjustable rate mortgage.
Agency
A term sometimes used to refer to government or private entities such as Fannie Mae, and Freddie Mac.
Amortization
When a loan is repaid in equal and periodic installments with a set amount of interest and principal to be collected. In amortization, interest payments decrease over time and principal payments increase over time until the entire balance of the loan is paid in full.
Amortization Schedule
A table or spreadsheet that shows each payment that is made for the life of the loan, what portion of each payment is interest, what portion is principal, and the unpaid principal balance that corresponds to each payment made.
Amortization Term
The length of time for which mortgage payments will be made for the life of a mortgage loan expressed in months or years.
Annual Percentage Rate (APR)
The total cost of a mortgage loan including both interest and loan fees expressed as a yearly percentage. The Annual Percentage Rate is used to compare loans that different lenders offer as it takes into account the fees in addition to the interest rate on the loan. Using the APR is helpful so consumers can compare apples to apples when mortgage shopping.
Appraisal
An assessment of the value of a property determined by a licensed professional called an “appraiser.” Comparable homes that sold recently in the neighborhood, condition of the home, and the property type are just some of the items the appraiser will take into consideration when evaluating the home.
Appraised Value
The fair market value of a property as determined by a licensed appraiser.
Appraiser
One who is licensed and qualified to assess the value of real property.
Arm’s Length Transaction
A transaction among parties whereby both individuals have their own best interest at heart.
Assessment
A local tax that is collected on a property for a specific purpose, such as a roads, sewers, and sidewalks.
Assignment
When an individual with a mortgage “assigns” or transfers the mortgage to another person.
Assumable Mortgage
An assumable mortgage is one that can be transferred from a seller to a new buyer. The buyer may need to go through basic credit and income qualifications and there may be a fee the lender will charge in order to transfer the mortgage.
Assumption
An agreement between a buyer and seller in which the buyer will “assume” or take over the existing mortgage and property of the seller. Assuming a loan can usually save both the buyer and seller money in the form of the closing costs charged for buying and selling.
Assumption Fee
The fee charged by a lender when an assumption is completed.
Attachment
A legal seizure of property by a judge in order to force payment. A lien is usually placed on the property as a result of the attachment. An attachment usually creates a lien on the property.
Attest
To certify formally with signature.
Back-End Ratio
The ratio of the sum of all monthly debt payments divided by the total income. The back-end ratio is one of the main factors lenders will look at when determining repayment ability of a borrower.
Bad Title
A circumstance where full real estate ownership of a property is compromised by outstanding claims or liens on title.
Balloon Mortgage
A loan that is amortized over a longer period of time than the actual loan term itself. This means that at the end of the loan term, there will still be an outstanding principal balance (which could be significant) that will become due all at once. This final payment is also referred to as the balloon payment.
Balloon Payment
The final payment that must be paid by the maturity date of a balloon mortgage.
Bankruptcy
The judicial process of seeking financial relief from one’s debts. Debts may be restructured or erased completely depending on which type of bankruptcy is filed (Chapter 13 or Chapter 7 respectively). This process can significantly impact one’s credit score.
Basis Point
A basis point is the equivalent of 1% of 1%. For example, 1 basis points = 0.01%
Beneficiary
A person who is set to gain some form of benefit from something. An example of a beneficiary would be the beneficiary of a trust or a life insurance policy.
Bill of Sale
A documented instrument used to deliver ownership or title of personal property from a seller to a buyer.
Blanket Mortgage
A mortgage that is secured by at least two separate pieces of property and is secured by the same mortgage. This is traditionally used by builders and developers to secure financing for multiple separate properties but can also be used by individuals in certain circumstances.
Blended Rate
An interest rate that is calculated from two separate loans with two different interest rates. A blended rate is normally used to compare the overall rate between two existing loans and a new single loan.
Bona Fide
In good faith, without the intention to deceive.
Borrower (Mortgagor)
One who applies for and receives a loan from a lender (Mortgagee).
Bridge Loan
A loan that is usually taken against a property that one plans to sell in order to move up to a larger property. This is commonly used in order to meet any down payment requirements for the new property before actually selling the departing residence.
Broker
A third-party individual who arranges transactions between a buyer and lender. A broker will originate a loan for a buyer and find a lender with which to get that loan funded. A commission or fee is usually charged by the broker for this service.
Buy-down
A financing technique used by lenders and home builders where subsidies are applied to the mortgage to lower the interest rate for the first few years. The payments initially will start off low, but after the initial subsidy period is over, the rate and payment on the mortgage will rise.
Cash Flow
The amount of money that is transferred into or out of an asset. With respect to investment properties, cash flows refer to the amount of money that is generated or lost from a property once all expenses have been accounted for.
Caps
Limits on the amount an interest rate can change in any given period or over the life of the loan in an adjustable rate mortgage. There are usually three separate caps, the initial, periodic, and lifetime caps.
Ceiling
The highest possible interest rate for an adjustable rate mortgage during the life of the loan.
Certificate of Eligibility
A document issued to qualified Veterans by the US Department of Veterans affairs which outlines the Veteran’s entitlement to a VA loan for homes, business, and mobile homes.
Certificate of Reasonable Value (CRV)
An appraisal that is completed by a VA approved appraiser specifically for a VA loan which indicates the current market value of the property.
Certificate of Title
A document provided by an abstract company, title company, or attorney demonstrating that the title of a specific property is legally held by the current owner.
Certificate of Veteran Status
A document issued to Veterans by the VA which may enable borrowers to obtain lower down payments on certain FHA insured mortgages.
Clear Title
A chain of title which is free of any outstanding claims or liens (or clouds) and is marketable.
Closing
The meeting between a buyer, seller, and agents whereby the property and funds used to purchase the property legally change hands. Closing can also sometimes be referred to as the settlement date.
Closing Agent
A third party (usually an escrow company or attorney) who prepares the paperwork and oversees the closing or settlement.
Closing Costs
Expenses that are outside of the purchase price of the property that are charged for services related to buying, selling, or refinancing. Examples of some closing costs are origination fees, appraisal fee, credit report fee, title fees, and escrow fees just to name a few. Closing costs can vary depending on the area you live and the lender you choose.
Cloud on Title
An outstanding claim or lien on title.
COFI
Cost of Funds Index. One of several indices used as a base for Adjustable Rate Mortgages. The most common COFI used for ARMs is the 11th District Cost of Funds.
Collateral
Real Estate pledged as security for a debt instrument.
Combined Loan to Value (CLTV)
The total of the sum of all outstanding principal balances for any mortgages held against a property divided by the appraised value of the property.
Commitment
A concrete agreement or firm deal.
Conforming Loan
A loan that can be purchased by FNMA or FHLMC.
Construction Loan
A short-term loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she continues the construction of the property to completion.
Consumer Reporting Agency (or Credit Bureau)
A third-party organization who handles the preparation of credit reports used by lenders to determine a potential client’s credit and payment history.
Contract Sale or Deed
A binding agreement between a purchaser and a seller of real estate to take over title after certain conditions have been satisfied.
Conventional Loan
A mortgage loan that is not insured by Federal Housing Administration (FHA) or guaranteed by US Department of Veteran Affairs (VA).
Conversion Clause
A feature of an adjustable rate mortgage (ARM) which allows for the loan to be converted to a fixed rate mortgage after a specific period of time (usually after the first adjustment period). There may be a fee in order to convert the loan to a fixed rate.
Conveyance
The transfer of the Title of real estate from one person or entity to another.
Covenant
A contract written into deeds and other instruments agreeing to certain requirements or restricting certain uses of the property.
Credit Report
A report documenting the credit history and current status of all of a borrower’s credit accounts.
Credit Repository
A third-party organization who handles the preparation of credit reports used by lenders to determine a potential client’s credit and payment history.
Credit Risk Score
A mathematical calculation that takes many pieces of information from a consumer’s credit and payment history on their credit report and assigns a triple digit score. This score represents the amount of overall risk a lender would assume. The most common risk score is referred to as the FICO score.
Debt-to-Income Ratio
A ratio expressed as a percentage, of the total of all of a borrower’s total monthly debt payments, divided by the borrower’s total monthly income.
Decree
An order issued by a legal authority.
Deed
A legal document that conveys ownership interest in real property.
Deed of Trust
Document that can be used to secure the payment of a note. In some states, a deed of trust can replace a mortgage.
Default
Failure to make the monthly mortgage payments despite the legal obligation to do so.
Deferred Interest
When a mortgage comes with a monthly payment that is less than what would be required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.
Delinquency
Failure to make payments on time or within the allowed grace period. Too many delinquencies can and may lead to foreclosure.
Department of Veterans Affairs (VA)
A government agency which guarantees long term, low to no down payment mortgages for eligible veterans.
Discount Point
Amount charged by a lender at the time of origination for the difference in cost between the market rate and the rate a borrower selects which is lower than the market rate.
Donor
A person who gives or gifts. In mortgages, Donor usually refers to a family member or close relative who gifts money to a borrower in order to help with down payment and closing cost requirements.
Down Payment
Money that is paid by a buyer to bridge the gap between the mortgage amount and the purchase price of a home.
Due-on-Sale-Clause
A provision in which the lender can demand immediate repayment of the mortgage in full if the mortgage holder sells the home.
Earnest Money
Money paid to a seller by a buyer and held in escrow for the purposes of binding a purchase agreement to purchase the home.
Ejectment
The action or process of evicting a tenant from real property.
Encumbrance
A claim against a property by a third party which usually affects the ability to transfer title or ownership of the property.
Entitlement
Refers to the VA home loan benefit.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity
The difference between the current market value of a property and the amount that is currently owed on the mortgage.
Exculpatory Clause
A provision in a mortgage that frees the borrower from liability should they need to surrender the property.
Executed Contract
An agreement whose terms and conditions have been completely fulfilled.
Escrow
An account that is established by the borrower for the purposes of paying annual and semi-annual property tax and homeowner’s insurance payments. Can also refer to the company which holds all funds throughout a real estate transaction.
Escrow Disbursements
Funds that are collected throughout the year paid in annual or semi-annual installments for real estate taxes and homeowner’s insurance.
Escrow Payment
The part of a person’s monthly mortgage payment that is collected for the purposes of paying annual or semi-annual property taxes and homeowner’s insurance.
Fannie Mae
Another name for the Federal National Mortgage Association.
Farmers Home Administration (FMHA)
Provides financing to farmers and other qualified borrowers in certain rural areas.
Federal Home Loan Mortgage Corporation(FHLMC)
A government sponsored entity that purchases conventional mortgages from approved mortgage lenders and banks. Also referred to as “Freddie Mac.”
Federal Housing Administration (FHA)
Part of the Department of Housing and Urban Development, FHA’s main function is to insure residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA)
A government sponsored entity that purchases and sells conventional residential mortgages as well as FHA mortgages and VA mortgages. Also referred to as “Fannie Mae.”
FHA Loan
A loan backed by the Federal Housing Administration. This program is open to all qualified home buyers.
FHA Mortgage Insurance
A fee paid to the Federal Housing Administration (FHA) in order to insure the mortgage being obtained. The upfront fee is typically 1.75 percent of the mortgage being obtained and can be added to the loan balance. An annual fee is also assessed and can range anywhere from 0.5 percent to 1.5 percent depending upon the loan amount, loan term, and down payment on the property. The annual fee is usually paid in monthly installments as part of the mortgage payment. The lower the down payment, the longer the annual fee will be assessed.
FHLMC
Stands for The Federal Home Loan Mortgage Corporation. This government sponsored entity purchases conventional loans in the secondary market. Also known referred to as “Freddie Mac.”
FICO Score
A credit scoring model created by Fair Isaac and Company. A credit score is used to represent a borrower’s entire credit history into a single score.
First Mortgage
The primary lien on title of real property.
Fixed Rate Mortgage
A mortgage with an interest rate that will remain the same throughout the duration of the repayment period.
Float
An interest rate that has not yet been locked.
Flood Insurance
Insurance that provides payments in the event of damage to the property as a result of flooding. This insurance is required on properties located in federally designated flood zone.
FNMA
See definition for the Federal National Mortgage Association.
Foreclosure
A judicial process where the lender forces a sale of a mortgaged property because the borrower has failed to meet the terms of the mortgage. Can also be referred to as a repossession of property.
Freddie Mac
See definition for the Federal Home Loan Mortgage Corporation.
Fraud
Intentional deception or misrepresentation for some gain where another party may suffer a loss.
FSBO
Acronym for, For Sale By Owner.
Full Disclosure
The process of making all pertinent information known in a transaction.
Fully Indexed Rate
An interest rate that is equal to the sum of the margin and the current index value on an adjustable rate mortgage (ARM).
Funding
When a lender provides the funds for the purchase or refinance of a property in order to pay the seller or current mortgage holder for the balance owed on the property.
Fully Amortized ARM
An adjustable rate mortgage (ARM) with a monthly payment that is sufficient to pay off the remaining balance, over the remaining amortization term.
Gift Deed
A Deed for which property ownership is transferred from one person to another without the exchange of money.
Ginnie Mae
See Government National Mortgage Association.
Government National Mortgage Association (GNMA)
Guarantees timely payments on mortgage backed security instruments insured or guaranteed by FHA or VA to institutional investors. Also known as “Ginnie Mae”
Good Faith Estimate
Under the Real Estate Settlement Procedures Act, a closing cost estimate that is provided to mortgage applicants within three days of submitting a complete loan application. This document has been superseded by the Loan Estimate based on the Dodd Frank legislation.
Grace Period
A period of time that is given to borrowers in order to make payments to creditors after the payment due date without penalty. After the grace period, the payment would be considered late and/or in default.
Graduated Payment Mortgage (GPM)
A type of mortgage that begins with initially low monthly payments which gradually increase or graduate over a period of time. Graduated Payment Mortgages usually have negative amortization built into the mortgage.
Gross Income
Income received before taxes and expenses are deducted. This income is usually the income used to qualify for mortgage loans.
Growing Equity Mortgage (GEM)
A fixed rate mortgage where the payments are increased over a period of time in order to reduce the remaining balance of the mortgage.
Guaranty
A promise from a party or entity to pay an obligation for another party if that other party fails to meet its contract or obligation to pay the debt owed.
Hazard Insurance
A form of homeowner’s insurance that is designed to protect against any losses that result from fire, windstorms, and similar catastrophes. For a complete list of coverage, refer to your specific insurance policy.
Home Equity Line of Credit (HELOC)
A credit line that is secured by real property and usually comes in the form of a second mortgage. A HELOC allows an individual to utilize the equity of a property for any purpose.
Housing Expense-to-Income Ratio
The total of all monthly housing expenses (principal, interest, taxes, insurance, and any homeowner’s association fees) divided by a borrower’s total monthly income expressed as a percentage. This percentage can sometimes be referred to as the front-end ratio.
HUD-1 Statement
A document that provides an itemized listing of the funds to include real estate commissions, loan fees, title/escrow fees, and other third-party fees that are payable/collectable at closing. This form has been superseded by the Closing Disclosure based on the Dodd Frank legislation.
Impound
The part a borrower’s monthly mortgage payment that is held in an account in order to pay things such property taxes and hazard insurance when they become due. This prevents borrower’s from having payment shock when these large bills come due annually or semi-annually.
Index
A published interest rate that is used for margin and interest rate adjustment purposes on adjustable rate mortgages. Depending on how the index moves up or down, the interest rate on an adjustable mortgage would also move up or down accordingly.
Indexed Rate
The sum of the published index rate plus the margin on an adjustable rate mortgage.
Initial Interest Rate
The starting rate on an adjustable rate mortgage. This rate will change after the initial fixed period for adjustable rate mortgages.
Installment
The scheduled periodic payment that a borrower agrees to make to his/her lender.
Interest
The cost for borrowing money.
Interest Accrual Rate
The rate of interest that is used to calculate monthly interest payments on a mortgage. The total interest on a mortgage can also be calculated from this rate.
Interest Rate Buydown Plan
An agreement that gives a property seller the ability to make payments to a mortgage lender in order to reduce the buyer’s interest rate, typically for the first few years of the mortgage.
Interest Rate Ceiling
The maximum interest rate for an Adjustable Rate Mortgage (ARM) as stated in the note.
Interest Rate Floor
The minimum interest rate for an Adjustable Rate Mortgage (ARM) as declared in the note.
Interim Financing
A construction loan made during the process of building a project. A permanent loan will replace this short-term loan usually once the project is complete.
Investor
A source of money for a lender or institution. An investor can be an individual or an entity.
Jumbo Loan
A loan which exceeds the loan limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Since jumbo loans are not funded by these two agencies, they usually come with higher interest rates.
Late Charge
A penalty given to borrowers if the payment is made after the due date and grace period allotted. On most mortgages, the mortgage payment is due on the 1st and late if the payment is received after the 15th of the month. Always refer to your statement for actual due dates and grace periods.
Liabilities
A person’s or entity’s financial obligations. Most liabilities fall into two main categories, long-term and short-term debt.
Lien
The right to retain possession of property belonging to another person or entity until a debt owed is satisfied by that person or entity.
Lifetime Payment Cap
The limits for how much the payments can increase or decrease over the life of a loan for an adjustable rate mortgage (ARM).
Lifetime Rate Cap
The limits for how much the interest rate can increase or decrease over the life of a loan for an adjustable rate mortgage (ARM).
Loan
A sum of money which is borrowed and usually repaid with interest.
Loan to Value Ratio
The ratio between the amount of a mortgage loan and the property value given as a percentage. (Example 70% loan to value or LTV)
Lock
A lender’s promise that the mortgage rate quoted will be good for a set number of days from the date of locking the interest rate.
Margin
An additional cost the lender adds to the index on an adjustable rate mortgage to set the adjusted interest rate.
Market Value
The highest and lowest price a buyer and a seller would agree to pay or sell a given property. It is possible to purchase a property for under the market value in certain circumstances.
Maturity
The date on which the full repayment of the outstanding principal loan balance becomes due.
MIP (Mortgage Insurance Premium)
Refers specifically to the mortgage insurance required on FHA insured mortgages. This insurance protects the lender from losses in the event of a borrower’s default.
Monthly Fixed Installment
The principal and interest portion of the total monthly mortgage payment.
Mortgage
A legal instrument that grants a property to the lender as security for the repayment of a debt.
Mortgage Bank
A company which originates mortgages to be sold in the secondary mortgage market.
Mortgage Broker
An individual or company that charges a fee to link borrowers and lenders together in order to originate loans.
Mortgagee
A lender.
Mortgage Insurance
Insurance carried on a mortgage when the down payment is typically less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
Mortgagor
A borrower or homeowner.
Negative Amortization
As interest accrues on a loan, payments do not cover all the interest that is due. The interest is then added to the outstanding principal balance effectively leaving a borrower to owe more than what was originally borrowed for the loan.
Net Effective Income
A borrower’s income after federal taxes have been deducted.
Non-Assumption Clause
A condition of a mortgage contract prohibiting an assumption of the mortgage without the lender’s prior approval.
Note
A legal instrument which obligates a borrower to repay a mortgage loan at an established interest rate for a set period of time.
Origination Fee
A fee charged by a broker or lender to prepare loan documents, pull credit reports, and get properties appraised. This fee is usually calculated as a percentage of the loan.
Owner Financing
When the seller of a property provides the buyer of the property with all or part of the financing to purchase the property.
Payment Change Date
The date when a monthly payment changes and is due on an adjustable rate mortgage (ARM) or a graduated-payment mortgage (GPM). Usually, the payment change date takes place in the month immediately following the adjustment date.
Periodic Payment Cap
The limits for how much payments can increase or decrease between any given adjustment periods.
Periodic Rate Cap
A restriction on how much the interest rate can increase or decrease during any single adjustment period, despite how high or low the index may be.
Permanent Loan
A long-term mortgage loan that is usually a minimum of 10 years.
PITI
Acronym for principal, interest, taxes and insurance. Also referred to as the monthly housing expense.
Points (Discount Points)
Money paid in order to get a lower rate at the time of loan consummation. Every point is equal to one percent of the loan amount.
Power of Attorney
A legal document permitting one person to sign legally binding documents on behalf of another person.
Preapproval
The process of assessing a buyer’s purchasing power by evaluating their income, debts, and credit in order to pre-qualify them for loan approval.
Prepaid Expenses
Funds collected at closing which are necessary to establish an escrow account that is used to pay for taxes, insurances, mortgage insurance, and any assessments on the property when they become due. Prepaid expenses can also refer to the prepaid interest that is collected at closing.
Prepayment
The ability to make advanced payments on a mortgage, prior to the due date, without penalty.
Prepayment Penalty
A fee charged for the early repayment of a mortgage. Not every loan comes with prepayment penalties.
Primary Mortgage Market
Refers to the market in which borrowers seek and obtain mortgage loans directly from mortgage lenders, banks, and brokers. Once loans are originated and closed in the primary mortgage market, they are sometimes sold to other investors on the secondary mortgage market.
Principal
Usually refers to the balance of the mortgage that remains without considering interest. The term can also refer to the original loan balance of the mortgage.
Principal Balance
The balance that remains on a mortgage not considering any interest payments or any other charges.
Principal, Interest, Taxes, and Insurance (PITI)
A monthly mortgage payment consists of four separate parts. The principal refers to the part which pays down the actual balance of the mortgage. The interest refers to payments made for borrowing the principal. The taxes and insurance are paid annually but the payments for these are considered as a monthly payment and factored into the overall mortgage payment.
Private Mortgage Insurance (PMI)
When a large enough down payment is not placed on a property, the lender may require mortgage insurance for the mortgage. In this case, a separately monthly or up-front fee can be assessed to insure the mortgage in the event of a default on the loan.
Qualifying Ratios
Predetermined ratios that are utilized by lenders to approve or deny borrowers for a mortgage.
Rate Lock
A promise to a borrower from a broker, lender, or bank guaranteeing a particular interest rate and lender costs for a set period of time.
Realtor
A person who acts as an agent for the purchase or sale of land or real estate, and who also holds an active membership with the National Association of Realtors.
Real Estate Agent
A licensed individual who negotiates and conducts the sale or purchase of real estate on behalf of a buyer and/or seller.
Rescission
The process of cancelling a contract. On owner occupied refinances, the law in many cases gives a borrower three business days after the close of a mortgage loan in order to cancel the refinance with no penalty. Any costs that a borrower would have paid up-front for the purpose of closing the refinance (such as an appraisal) may not be refunded.
Recording Fees
A fee charged to a borrower as part of closing costs on a purchase or refinance. These funds go to the local government in order to record the mortgage thereby making it public record.
Refinance
The process of obtaining a new mortgage loan on an existing property. This new loan can be used to pay off an existing loan, take cash out of the property, or set up a new line of credit against the equity.
RESPA
Acronym for the Real Estate Settlement Procedures Act. RESPA is a federal law that was designed to protect consumers and educate them better on the real estate transaction as a whole. The law requires lenders to provide certain pieces of information at certain points during the loan process to the borrower once a loan application has been submitted.
Reverse Mortgage
A type of mortgage where the lender pays the homeowner monthly installments (or a cash lump sum, or line of credit) using the home’s equity as collateral for the loan. Typically, with these types of loans, the borrower will never have to make a payment back on the mortgage unless they pass away, move from the home, or sell the home.
Revolving Liability
A type of credit account where an unsecured line of credit is established with a pre-set limit. Customers can use this line of credit to make purchases for goods and services.
Real Estate Settlement Procedures Act (RESPA)
A federal law that was designed to protect consumers and educate them better on the real estate transaction as a whole. The law requires lenders to provide certain pieces of information at certain points during the loan process to the borrower once a loan application has been submitted.
Satisfaction of Mortgage
A document issued by a mortgagee acknowledging that a mortgage has been fully repaid and that a lien no longer exists on title for that mortgage. Also referred to as a release of mortgage.
Second Mortgage
An additional mortgage on a property which holds a second lien position to the first mortgage.
Secondary Mortgage Market
The market where lenders and banks sell mortgages in order to generate new funds to create new loans. The process of selling mortgages on the secondary market generates liquidity for lenders.
Security
Property that is held as collateral for a loan.
Seller Carry Back
A contract between a seller and buyer where the seller provides financing to the buyer to assist with down payment requirements, alongside a first mortgage. See also owner financing.
Servicer
An institution that collects principal and interest payments made on mortgage loans from borrowers and manages escrow accounts used to pay borrower’s taxes and insurances.
Settlement/Settlement Costs
See closing/closing costs
Simple Interest
Interest which is calculated using only the principal balance with no interest added.
Step Rate Mortgage
A mortgage that permits for interest rate and payment increases in increments according to a predetermined schedule.
Subrogation
The substitution of one person or group for another with respect to a specific debt or claim. The new person or group retains all rights.
Survey
A third-party service where a licensed land surveyor takes measurements of the land and property relative to a known point to determine the land and property dimensions. Some states require surveys on properties for mortgage loans.
Sweat Equity
Equity generated by a buyer performing work on a property being purchased.
Tenancy
The possession of real property by a tenant.
Testament
A person’s will, many times relating to real property.
Third Party Origination
Process where a lender or broker will originate a loan that may processed, underwritten, closed, and/or funded by another lender or financial institution. Once the loan is funded, it can then be sold on the secondary mortgage market.
Time Value of Money
The idea that money today is worth more than the same amount of money in the future due to its present earning potential. Money today can earn interest thereby generating additional funds beyond what standard cost of living increases would provide.
Title
A record that provides evidence of a person’s or entity’s ownership of real estate.
Title Binder
Protects both the buyer and seller during a real estate transaction by providing insurance through the transition of ownership from seller to buyer. This policy will be replaced upon consummation of the transaction.
Title Insurance
An insurance policy that protects a homeowner from errors in the title search process. Title insurance costs are usually directly proportional to the value of the home.
Title Search
An analysis of public records to establish the legal owner of a property. A title company usually provides this service.
Total Expense Ratio
The total minimum monthly debt obligations including housing expenses divided by the total monthly income expressed as a percentage.
Trust
An agreement whereby real estate or any other asset is transferred to a trustee by a trustor. The trustee holds and provides some protections of these assets for the benefit of a beneficiary of the trust.
Trustee
A person who is granted powers over a trust.
Trustor
A person who creates a trust.
Truth in Lending (TILA)
The federal law which demands that a lender disclose the annual percentage rate to a borrower within a certain period of time after a loan application has been provided. This law is also referred to as Regulation Z.
Underwrite
To accept liability for the salability of a loan or security.
Underwriting
To assess the risk of a potential home buyer defaulting on a loan by analyzing the buyer’s income, credit, and assets in order to determine whether to lend to that individual or entity.
Unencumbered Property
Real Estate with a chain or title free and clear of defects or liens.
Unsecured Loan
A debt with no collateral or security associated.
URAR
Acronym for Uniform Residential Appraisal Report.
Usury
An illegal act whereby an institution lends money at an unreasonably high rate of interest.
VA Loan
A loan that is guaranteed by the Department of Veteran Affairs and provides a long term, low to no down payment options for qualified applicants. This loan type is restricted to qualified present or past military service members and in certain cases their spouses.
Variable Rate Mortgage (VRM)
See adjustable rate mortgage.
Verification of Deposit (VOD)
A document provided by a borrower’s financial institution which verifies a specific deposit, current account balance, and status of the account in question.
Verification of Employment (VOE)
A document provided by a borrower’s employer which verifies present or past employment and income.
Void
Not valid or legally binding; unenforceable.
Waiver
The voluntary surrender of right or claim.
Warranty Deed
A deed which guarantees clear title to the buyer of real estate.
Zoning
A legal apparatus for local governments to restrict the use of privately owned real estate in order to prevent conflicting land use and foster orderly development.
