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ARM: Adjustable Rate Mortgage; a mortgage loan that is subject to interest rate fluctuations. When interest rates change, ARM monthly payments increase or decrease at regular intervals as outlined by the lender. With ARMs, there is usually a cap set for the monthly payment amount.

Acceleration: the lender’s right to demand payment on the outstanding balance of a loan.

Affidavit: a signed and sworn statement made by all involved parties that the information provided is true and accurate.

Amortization: a payment plan that enables you to reduce your debt gradually through monthly payments. With amortization the monthly payment amount is based on a schedule spanning the full term of the loan. Such payments may be interest-only, or principal and interest.

Annual Mortgagor Statement: details of the remaining principal and amounts paid for taxes and interest are sent in a yearly statement to borrowers.

Annual Percentage Rate (APR): APR is a higher rate than the simple interest of the mortgage, and includes interest as well as other charges. It is a measure of the cost of credit, in terms of a yearly rate. Because federal law requires all lenders to follow the same rules so that the accuracy of the annual percentage rate is ensured, the APR provides consumers with an accurate foundation for comparing the cost of different loans or mortgage plans.

Application: a form used to record important information about the potential borrower. An application is required for the underwriting process, and is the first step in the official loan approval process.

Application Fee: a fee charged by lenders to process a loan application.

Appraisal: an evaluation and, specifically, a document from an appraisal professional that gives an estimate of a property’s fair market value. Appraisals are based on sales of similar homes in the same area, as well as specific features of a property. Typically an appraisal is required by a lender before loan approval to ensure the mortgage loan amount matches the market value of a home, or is not greater than the value of the property.

Appraisal Fee: appraisers charge this fee for their services in estimating the market value of a property.

Appraised Value: the dollar amount representing a property’s fair market value.

Appraiser: a qualified professional who utilizes their knowledge and experience to evaluate a property and generate an appraisal estimate.

Appreciation: an increase in property value over time.

Arbitration: a method for settling a dispute without going to court.

As-is Condition: the existing condition of a property without repairs.

Asking Price: the price requested by a seller of a property.

Assessed Value: the value placed on a property (or any asset) by a public official. The assessed value is used to determine taxes.

Assessments: the method of placing value on a property for the purpose of determining taxes.

Assessor: a government official who determines the value of a property for the purpose of taxation.

Assets: any item, such as property, that has a measurable value.

Assignment: the transfer of a property from one party to another, such as for the purpose of holding the property in trust or for the benefit of the lender(s).

Assumable Mortgage: an assumable mortgage means the seller can transfer the mortgage to another buyer when a home is sold. Generally lenders stipulate that the new borrower’s credit be reviewed. A free may be charged for the assumption of a mortgage. The differnce, for example, is that some mortgages have a due-on-sale clause, meaning the mortgage may not be transferred to a new buyer. Rather the lender may make you pay the entire balance. An assumable mortgage is attractive, as it can help homeowners attract more buyers if they sell their home.

Assumption Clause: allows the buyer to take legal responsibility for a mortgage from the seller. This is a provision in the terms of a mortgage loan.

Automated Underwriting: a computer-based system for loan processing which evaluates credit history to determine if a prospective borrower qualifies for a loan. The advantage of automated underwriting is the removal of potential personal bias against the buyer.

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Back End Ratio (debt ratio): a ratio that expresses the total of all monthly debt payments (mortgage, taxes, insurance, car loans, etc) compared to a borrower’s gross monthly income.

Balloon Loan or Balloon Mortgage: a mortgage with low rates for an initial span of time (usually 5, 7, or 10 years), at which time the balance is due or is refinanced by the borrower for the remainder of the loan term.

Balloon Payment: the final payment due at the end of a balloon mortgage. This is generally a much larger lump sum of money.

Bankruptcy: when someone’s debt is more than they have the ability to repay, bankruptcy is a federal law where someone’s assets are relinquished to a trustee who uses the assets to pay off outstanding debts

Bid: the offered amount for a property at auction.

Biweekly Payment Mortgage: a mortgage that is paid twice a month instead of once a month

Borrower: a person who has been approved for a loan and is obligated to repay the loan as well as any additional fees, according to the terms of the loan.

Bridge Loan: a short-term loan typically expected to be paid back in a short amount of time. Normally bridge loans are used until a long-term loan can be processed.

Broker: someone (or a firm) who helps find or sell a house and is professionally licensed. Brokers charge a fee to serve as the mediator between the seller and buyer. Mortgage brokers are in the business of negotiating contracts or arranging funding for a client, but does not loan money nor have personal investment in the property.

Budget: all income earned and spent over a specific period of time, in detail.

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Capacity: based on assets
and the amount of income each month after paying housing costs, debts and other obligations, a person’s Capacity is their ability to make mortgage loan payments on time.

Capital Gain: the difference between the original purchase price and the total sale price.

Capital or Cash Reserves: a person’s assets, savings, and/or investments.

Cash Reserves: an cash amount determined by the lender in some cases which the lender requires the buyer to hold in reserve (in addition to down payment and closing costs).

Certificate of Sale: A document given to the winning bidder at a foreclosure sale stating their rights to the property.

Certificate of Title: a document provided by an approved party, such as a title company, and shows who the property legally belongs to.

Chapter 7 Bankruptcy: a cancellation of debt where assets are liquidated in order to repay a debt.

Chapter 13 Bankruptcy: a kind of bankruptcy with a payment plan between the borrower and the lender that is monitored by the court. In such cases the homeowner can keep the property but must make payments according to the court’s terms, typically within a 3 to 5 year range.

Charge-Off: the portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Clear Title: properties that have no title defects such that they are marketable for sale.

Closing: when the title of property is transferred from the seller to the buyer. Closing occurs at a meeting between the seller, buyer, settlement agent, and other agents. At the closing the seller receives payment (settlement) for the property.

Closing Costs: fees for final (closing) property transfer, not including the price of the property itself. Closing costs usually include charges for the mortgage loan such as appraisal fee, survey, title insurance, legal fees, real estate professional fees, origination fees, discount points,  prepayment of taxes and insurance, and real estate transfer taxes. Typical closing costs for the buyer is 2 to 4 percent of the total purchase price. For the seller closing costs are usually about 3 to 9 percent.

Cloud On The Title: any condition which renders a property’s title unsuitable for sale.

Co-Borrower, Co-Signer: a person that is additionally responsible for loan repayment and is listed on the title with the primary borrower.

Collateral: money or property that is pledged to secure repayment of a loan. For example, on property loans, the property itself is the collateral and can be taken away from the borrower if payments aren’t made.

Collection Account: an unpaid debt referred to a collection agency with the intent of collecting on the bad debt. When such an account is created, it is reported to credit bureaus.

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. Usually the home seller pays the commission. Commission amount is decided by a real estate professional and the seller and can be as much as 6% of the final sale price.

Comparative Market Analysis (COMPS): a property evaluation that determines property value by comparing similar properties sold within the last year.

Compensating Factors: factors that show a person’s ability to repay a loan based on less traditional criteria like employment, rent, and utility payment history.

Condominium: a form of property ownership in which individuals own a unit of housing in a multi-unit complex. Usually the owner also shares financial responsibility for common areas.

Conforming loan: is a loan that does not exceed Fannie Mae’s and Freddie Mac’s loan limits. Such loans are referred to as conforming loans.

Consideration: an item of value given in exchange for a promise or act.

Contingency: a clause in a sale contract that details conditions which must be fulfilled before the contract is executed. Both seller and buyer may include contingencies in a contract, but both parties must accept the contingencies for them to be valid.

Conventional Loan: a private loan that is not guaranteed or insured by the U.S. government.

Conversion Clause: a provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. General a conversion is allowed at the end of the first adjustment period. When a conversion occurs the new fixed rate is typically set at one of the rates common for fixed rate mortgages at that time. Sometimes there are additional costs for this clause.

Convertible ARM: an adjustable-rate mortgage that provides the borrower with the ability to convert terms to a fixed-rate within a specific amount of time.

Counter Offer: a rejection to part or all of a purchase offer for the purpose of negotiating different terms in order to come to an agreeable sales contract.

Covenants: transferred with the property deed, covenants are legally enforceable terms that govern the use of property.  Discriminatory covenants are illegal and unenforceable. Covenants are sometimes also referred to conditions, restrictive covenants, restrictions, or deed restrictions.

Credit: an agreement that a person will borrow money and repay it to the lender over time.

Credit Bid: A bid on behalf of the lender at a foreclosure sale, and must be less than or equal to the balance of a loan in default.

Credit Bureau: agencies who provide financial information and payment history to lenders about prospective borrowers.

Credit Enhancement: used by a lender to reduce the possibility a lender will default, this is a method that requires collateral, mortgage insurance, or other agreements.

Credit Grantor: the lender that provides credit or a loan.

Credit History: a record or ‘report’ that lists all debts and their payment histories. Lenders use this information to gauge prospective borrowers’ ability to pay back a loan.

Credit Loss Ratio: the ratio of credit-related losses to the dollar amount of outstanding and total mortgages owned by a corporation.

Credit Related Expenses: foreclosed property expenses plus an amount set for provision of losses.

Credit Related Losses: foreclosed property fees and expenses, combined with charge-offs.

Credit Risk: a term used to describe the possibility of default on a loan by a particular borrower.

Credit Score (FICO Score): calculated by using a person’s credit report to determine the likelihood of a loan being repaid on time, a credit score is a specific number (score). A higher credit score means that there is less risk in lending to the person.

Creditor: the lending institution providing credit or a loan.

Creditworthiness: measurement of a person;s ability to qualify for and repay a loan.

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Debtor: a person or entity who borrows money. Debtor is the same as ‘borrower’.

Debt-to-Income Ratio: a ratio or comparison between gross income and expenses

Debt Security: a security which represents a loan from an investor to an issuer. The issuer agrees to pay interest as well as the principal amount borrowed.

Decree: A judicial / court decision.

Deductible: a cash payment that is made by the insured (homeowner) to cover part of a damage or loss. Sometimes also called “out-of-pocket expenses.” Usually a higher deductible means a lower policy cost.

Deed (also Title): a document that legally transfers ownership of property from one party to another. A property deed is recorded on public record with the property description and the owner’s signature.

Deed-in-Lieu: to avoid foreclosure a
deed is given to the lender and is seen as fulfillment of the debt. While ded-in-lieu does not allow a borrower to stay in the house, it helps avoid the costs, time, and effort associated with foreclosure.

Deed of Trust: A three party security instrument that conveys legal title to real property as security for repayment of the loan. The borrower, lender and trustee are the three parties involved.

Default: the inability to make timely monthly mortgage payments or otherwise inability to comply with terms of a mortgage loan. A loan is considered in default when payment has not been paid for over 60 to 90 days. Once in default the lender can exercise legal rights as laid out in the contract for beginning foreclosure proceedings.

Deficiency Judgment: A personal judgment against a borrower for the remaining balance of a loan after a foreclosure sale.

Delinquency: failure of a borrower to make mortgage payments in a timely manner under a loan agreement. Oftentimes after fifteen days a late fee may be assessed.

Deposit (Earnest Money): money paid by a prospective buyer that shows they are serious about purchasing the property. The deposit then becomes part of the down payment if the offer is accepted, or is returned if the offer is rejected, or is forfeited in the case where the buyer pulls out of the deal. The deposit money may be returned to the buyer during the contingency period if contingencies are not met to the buyer’s satisfaction.

Depreciation: a decrease in the value or price of a property over time, such as due to wear and tear on the property, changes in market conditions, or other factors.

Disclosures: the release of pertinent information about a property that might influence the final sale. Disclosures typically are related to defects or problems with a property. “Full disclosure” usually refers to the responsibility of a seller to offer all known information about the property. Some disclosures, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing, may be required by law. If someone is found to have knowingly lied about a defect they may be confronted with legal penalties.

Discount Point: discount points are paid to reduce the interest rate on a loan and are normally paid at closing. Discount points are generally calculated to be about 1% of the total loan. In an ARM with rate discount at the beginning of the term, the lender gives up percentage points in interest in order to give the borrower a lower interest rate and lower payments for a portion of the mortgage term (usually less than one year). After the discount period, the ARM rate will most likely increase depending on the index rate.

Down Payment: part of a home’s purchase price that is paid upfront in cash and is not included in the principle of a mortgage loan. This amount varies but is figured by taking the difference of the sale price and the actual loan amount. When a down payment is less than 20 percent, mortgage insurance is required.

Document Recording: after securing a loan documents are filed and also made public record. First discharges for the previous mortgage holder are filed. Then the deed is filed with the new owner’s and lender’s names.

Due on Sale Clause: a special provision of a loan which allows the lender to demand repayment in full if the property is sold.

Duration: the number of years it will take for a borrower to pay off both principal and interest.

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Easements: legal rights that give someone other than the property owner access to use property for a specific purpose, such as for utility company equipment. Easements are sometimes a part of a property deed and may affect property values.

EEM (Energy Efficient Mortgage):  homebuyers can save money on utility bills by this FHA program which enables home buyers to finance as part of the home purchase the cost of energy efficiency improvements to a new or existing home.

Eminent Domain: when the government takes private property for public use and the owner receives payment for its fair market value.

Encroachments: any structure that extends over the legal property line into another person’s property is an encroachment. A property surveyor will note any encroachments on before property transfer and the party who owns the encroaching structure will be asked to remove it.

Encumbrance: any factor that affects title to a property, such as loans, leases, easements, or restrictions.

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

Equitable Title: a present right to possession of a property, with the right to acquire legal title once outlined conditions are met.

Equity: an owner’s financial investment in a property which is calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Escape Clause: a provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. For example, a very common use of escape clauses are scenarios where a buyer makes their purchase offer contingent on sale of another property.

Escrow: funds held by a third party until contractual requirements are satisfied at which point the escrow funds are released.

Estate: the total of all property, real and personal, owned by a person.

Exclusive Listing: a written contract giving a real estate agent the exclusive right to sell a property for a set period of time.

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FSBO (For Sale by Owner): property that is offered for sale by the owner without the benefit of a real estate agent.

Fair Housing Act: a law that prohibits discrimination in the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value: the price that a buyer and seller will agree upon when they are acting freely, carefully, and with full knowledge of all factors related to the property.

FHA (Federal Housing Administration): a federal organization established to benefit homeownership opportunities for all Americans. The FHA helps homebuyers by providing mortgage insurance to lenders which encourages lenders to make loans to borrowers who might not qualify for mortgages otherwise.

First Mortgage: the mortgage with highest priority if loans are not repaid.

Fixed Expenses: payments that do not fluctuate from payment to payment.

Fixed-Rate Mortgage: a mortgage with payments that stay the same for the whole term of the loan.

Fixture: personal property that is permanently attached to property that then becomes part of the real estate.

Flood Insurance: insurance that protects homeowners against losses from a flood. Usually if a home is located in a flood area a lender will require flood insurance.

Forbearance: when a lender decides not to take legal action when a borrower is late in making a payment. Usually forbearance requires a borrower creates a plan that both sides agree will bring mortgage payments up to date.

Foreclosure: a legal process in which mortgaged property is sold to repay the debt.

Free & Clear: Ownership of property that has been paid in full and is then owned outright.

Front End Ratio: a ratio showing a borrower’s total monthly cost to buy a house compared to monthly income (before deductions).

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GSE (government sponsored enterprises): financial services corporations created by the United States Congress to reduce interest rates for homeowners
and farmers. Examples include Freddie Mac and Fannie Mae.

Ginnie Mae (Government National Mortgage Association, or GNMA): a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, which combines FHA-insured and VA-guaranteed loans to support securities for private investments.

Good Faith Estimate: an estimate of all closing fees, taking into consideration down payments, escrow items as well as lender fees. A good faith estimate must be offered to a borrower within three days after they submit a loan application.

Graduated Payment Mortgage: a mortgage that starts with lower payments which then get steadily larger over a period of years, eventually reaching a fixed level and remaining there until the loan is repaid.

Grantee: interest in real property is conveyed to an individual known as the grantee.

Grantor: an individual who conveys an interest in real property to a grantee.

Gross Income: all income earned before taxes and other deductions. Types of income that are included may vary from case to case.

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HECM (Reverse Mortgage): a reverse mortgage is one typically used by senior homeowners aged 62 and older in order to convert equity in their home to monthly income and/or line of credit. Typically a mortgage lender, bank, credit union or savings and loan association funds such FHA insured loans.

Hazard Insurance: protection against a specific type of loss, such as from wind, fire, flood, etc..

Home Equity Line of Credit (Home Equity Loan): a mortgage loan which allows a borrower to get cash against the equity of a home.

Home Inspection: an inspection of a property including any mechanical systems. Home inspections are geared to determine a home’s quality and safety. The homebuyer usually pays home inspection fees.

Home Warranty: offers protection for included appliances and/or mechanical systems included with a property, in case unexpected repairs are not covered by homeowner’s insurance. A home warranty does not include the structure itself.

Homeowner’s Insurance: also called hazard insurance, a type of homeowner’s insurance that combines protection against damage to a property and its contents from fire, storms or other damages. Usually such insurance has built-in protection against claims of inappropriate action or negligence that result in property damage or someone’s injury. Flood insurance is usually not included in most insurance policies but can be purchased separately. Most lenders require homeowner’s insurance.

Homestead Credit: a property tax credit that is offered by some state governments and provides reductions in property taxes to eligible households.

Housing Counseling Agency: provides counseling and assistance to individuals on a variety of issues, including fair housing, loan default, and home buying.

HUD (the U.S. Department of Housing and Urban Development): HUD strives to create decent home conditions for all Americans by improving communities, enforcing fair housing laws, and addressing general housing concerns.

HUD 1 Statement (“settlement sheet,” or “closing statement”) : a document that details all closing costs and is required to be given to a borrower before or at the time of closing. Real estate commissions, loan fees, points, and escrow amounts are all items that appear in closing statements.

HVAC (Heating, Ventilation and Air Conditioning): a home’s heating and cooling system.

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Indemnification: the act of securing against any damage or loss, or to compensate or give security toward reimbursement in the event any losses or damages are incurred. Inclusion of an indemnification provision contract is suggested for all homeowners dealing with another party, such as a general contractor.

Index: how much an interest rate changes over time. Lenders use this to decide how much the interest rate of an ARM will fluctuate over time. If a lender bases interest rate adjustments on the average value of an index over time, the borrower’s interest rate will not be as volatile. Homebuyers can ask their lender how the index for any ARM has changed in recent years.

Inflation: when the number of dollars in circulation is greater than the amount of goods and services available for purchase, and decreases the dollar’s value.

Inflation Coverage: a provision which automatically adjusts the amount of insurance to accommodate for inflationary rises in a property’s value. This type of coverage does not adjust for home value increases due to improvements of the property.

Inquiry: a request for a credit report. A credit inquiry happens every time more credit is requested. If there are a great amount of inquiries on a credit report it can sometimes lower a credit score.

Interest: a fee charged for borrowing money that is required to be paid back along with the principal amount.

Interest Rate: the amount of interest charged on a monthly loan payment, in terms of a percentage number.

Intermediate Term Mortgage: a mortgage loan term that lasts 20 years or less.

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Joint Tenancy (with Rights of Survivorship): multiple owners share equal ownership and rights to a property. If a joint owner dies their share of the property passes to the other owners and bypasses probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.

Judgment: a legal decision; a judgment may include a property lien that protects the creditor’s claim by providing a collateral source when requiring debt repayment.

Judicial Foreclosure: A foreclosure that is processed by a court.

Jumbo Loan (or non-conforming loan): a loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, which are referred to as conforming loans.

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Late Payment Charges: an additional charge the homeowner must pay when a loan payment is late.

Lease: a written agreement between a tenant and property owner that outlines the payment terms and conditions under which the resident may occupy a property for a specific period of time.

Lease Purchase (Lease Option): allows homebuyers to lease a home with an option to buy. In such cases payments are made up of the monthly rent plus an additional amount that is put toward a down payment.

Legal Description: A formal description of a property that is sufficient for others to use for locating the property when referring to government surveys or approved maps.

Liabilities: someone’s financial obligations such as short-term and long-term debt, as well as any other debts.

Liability Insurance: insurance coverage that protects homeowners from claims alleging a their action or negligence caused bodily injury or damage to another person. Liability insurance is typically included in homeowner’s insurance.

Lien: A legal claim of money against a property that must be resolved if the property is sold. A common example is a tax lien for unpaid property taxes. A lien renders a property’s title defective and must be settled before transfer of ownership can take place. When a lien is paid off a lien release should be recorded in public records.

Lien Waiver: A document that releases a homeowner from any further obligation for payment of a debt once it has been paid in full. Lien waivers are used to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner’s property for nonpayment.

Life Cap: a limit on how much interest rates can go up or down over the life of an adjustable-rate mortgage
(ARM).

Liquid Asset: cash or an asset that can be easily converted into cash.

Listing Agreement: a contract between a real estate professional and seller that stipulates the agent will seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Lis Pendens: recorded notice of a pending lawsuit.

Loan Fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan. Loan fraud may result in civil liability or criminal charges.

Loan Origination Fee: a charge by a lender which covers mortgage administrative fees. This charge is paid at closing and varies with the type of loan and lender. Commonly a loan origination fee is 1 to 2 percent of the loan amount.

Loan Servicer: the party that collects mortgage payments and distributes insurance payments and property taxes. Loan servicers may be the lender or a separate company that specializes in loan servicing and is under contract with the lender or the investor who owns the loan.

Lock-In: some lenders offer an interest rate lock-in which guarantees the interest rate will not go up so long as it is repaid within the specified time period.

Lock-in Period: the length of time that a lender has guaranteed a specific interest rate to a borrower.

Loss Mitigation: a process to avoid foreclosure where a lender tries to assist a borrower who has been unable to make loan payments and is in danger of defaulting.

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Margin: the number of percentage points a lender adds to the index rate so they can calculate the ARM interest rate at each adjustment.

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

Median Price: the price of the house that falls in the middle of prices of the total number of homes for sale in that area.

Mitigation: various changes or improvements made to a property to alleviate negative issues with the property.

Modification: when a lender agrees to modify the terms of a mortgage loan without requiring refinancing of the loan.

Mortgage: a lien on property that secures the promise to repay a loan. A mortgage agreement gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.

Mortgage Acceleration Clause: a clause in a mortgage agreement that allows a lender, under certain circumstances, to demand the entire balance of a loan be repaid all at once. Such a clause is usually triggered by a home being sold, if title to the property is changed, or if the loan is refinanced or the borrower defaults.

Mortgage Banker: a company that originates loans and then sells them to secondary mortgage lenders.

Mortgage Broker: a firm that originates and processes loans for multiple lenders.

Mortgage Life and Disability Insurance: term life insurance that pays off a mortgage in the event of death or covers monthly payments in the case of disability.

Mortgage Insurance: an insurance policy that protects lenders against some or most of the losses that may occur if a borrower defaults. Oftentimes mortgage insurance is required for borrowers who put down less than 20% of the home’s price. The cost of mortgage insurance is usually added to the monthly mortgage payment.

Mortgage Modification: allows a borrower to refinance and/or extend the term of the mortgage loan and so reduce their monthly payments.

Mortgage Note: a legal document outlining terms of a mortgage loan, which obligates a borrower to repay a loan at a stated interest rate during a stated period of time. Mortgage notes are recorded in the public records along with a property’s deed.

Mortgage Qualifying Ratio: a figure used to calculate the maximum amount of funds that an individual may be able to afford. A typical mortgage qualifying ratio is 28: 36.

Mortgage Score: a value based on a combination of information about a borrower, such as from their loan application, property value information, and credit report, and represents a borrower’s ability to manage credit and repay a mortgage loan.

Mortgagee: the lender in a mortgage loan agreement.

Mortgagor: the borrower in a mortgage loan agreement.

Multifamily Housing: a building with more than four residential rental units.

Multiple Listing Service (MLS): realtors submit listings using MLS which offers the advantage of more timely information, availability, and access to houses and other types of property available for sale.

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National Credit Repositories: The three main credit bureaus are Equifax, Experian, and Trans Union, and are responsible for national credit-reporting.

Negative Amortization: occurs when monthly mortgage payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. Even after making many payments you could owe more than you did at the beginning if you get into a negative amortization situation.

Net Income: the amount of money a person receives after taxes and deductions.

No Cash Out Refinance (Rate and Term Refinance): refinancing of an existing loan that only applies to the amount remaining on the mortgage. The borrower does not get any cash against the equity of the property.

No Cost Loan: a loan that does not charge for things like appraisal, title insurance, escrow fees, settlement fees, recording fees or notary fees. It may also offer no points. No cost loans typically have a higher interest rate.

Nonperforming Asset: an asset such as a mortgage that is not gaining interest or on which interest is not currently being paid.

Notice of Default: a formal written notice to a borrower that they are in default on a loan and legal action could be taken by the lender.

Notice of Sale: A notice providing detailed information about the loan in default and any upcoming legal proceedings. Such a notice must be recorded with the county where property is located and advertised as stated in associated terms documents, or as stipulated by state law.

Non-Conforming loan: is a loan that is greater than Fannie Mae’s and Freddie Mac’s loan limits. Fannie Mae and Freddie Mac loans are referred to as conforming loans.

Non-judicial Foreclosure: The process of foreclosure when no judicial judgment is involved. This type of foreclosure, or “power of sale” clause, of a deed of trust or mortgage, which pre-authorizes the sale of property to pay off the remaining loan balance if it goes into default.

Notary Public: a public official who has authority to certify the authenticity of required signatures on documents by signing and stamping it.

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Offer: indication by a prospective buyer of their willingness to purchase a home. Offers are generally submitted in writing.

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

Origination: the process of preparing, submitting, and evaluating a loan application.

Origination Fee: the charge for originating a loan and is usually paid at closing.

Owner Financing: a home purchase where the seller provides all or part of the financing, thus acting as a lender.

Ownership: ownership is documented by the deed to a property. The type or form of ownership is important if the property changes ownership or if there is a change in the status of the owners.

Owner’s Policy: a kind of insurance policy that protects the
buyer from title defects.

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PITI: Principal, Interest, Taxes, and Insurance: the four components of a monthly mortgage payment. payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance typically goes into an escrow account with the intent of covering the fees when they come due.

PITI Reserves: a cash amount that a borrower must have at the ready– in addition to making a down payment and paying all closing costs for the purchase of a property.

PMI: 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.

Partial Claim: offered by the FHA that allows a borrower, this is a loss mitigation option  where with help from a lender a borrow can get an interest-free loan from HUD to help bring their mortgage payments up to date.

Partial Payment: a payment is one that is less than the total amount owed for the given payment period. Normally lenders do not accept partial payments, but they may make exceptions during times of difficulty if the borrower contacts the lender before the due date.

Payment Cap: a limit on how much an ARM’s payment may increase. This limit is set regardless of whether the interest rate increases.

Payment Change Date: the date on which new monthly payment amount takes effect for a graduated-payment mortgage (GPM), or an adjustable-rate mortgage (ARM).

Payment Due Date: the date specified by when payments are due. Payment must be received on or before the specified date.

Personal Property: any property that is not real property or attached to real property. For example, furniture is not attached however new bathroom fixtures would be considered attached and part of the real property.

Points: a point is equal to one percent of the principal amount of a mortgage loan. For example, if you get a mortgage for $80,000, one point means you pay $800 to the lender.  These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split.

Power of Attorney: a legal document that authorizes another person to act on another person’s behalf. A power of attorney can grant complete authority or can be limited to certain periods of time, certain acts, or both.

Pre-Approval: a borrower can go through all the application and qualification steps as when ready to purchase property, but in the case of pre-approval they can secure approval before there is a specific property to purchase. The pre-approval agreement is good as long as the borrower still meets the qualification requirements when they are ready to purchase.

Predatory Lending: refers to abusive lending practices which may include lending to someone who does not have the ability to repay the loan, or it can refer to repeated refinancing of a loan where high interest and fees are charged each time.

Pre-foreclosure Sale: a procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure and satisfy the debt.

Prepayment: any amount paid to reduce the principal balance of a loan before the monthly due date or to pay off a total debt before it is due.

Prepayment Penalty: a provision of some loans that charge borrower’s a fee if they pay off a loan before it is due.

Pre-Qualify: an informal determination of the maximum amount an individual is eligible to borrow (doesn’t guarantee a loan).

Premium: an amount paid at regular intervals by a policyholder to maintain insurance coverage.

Prime Rate: the interest rate that banks charge to preferred borrowers. The prime rate affects the current interest rates offered at a particular point in time on fixed mortgages, but do not affect the interest on a fixed mortgage.

Principal: the amount of money borrowed and does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.

Promissory Note: a written promise to repay a specified amount over a set span of time.

Property (Fixture and Non-Fixture): in a real estate contract, fixture property is the land within the legally described boundaries as well as all permanent structures and fixtures. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, and such fixtures transfer with the property.

Property Tax: a tax charged by local government and used to fund municipal services such as police, schools, or street maintenance. The amount of property tax is determined locally by a formula and the value of the property.

Property Tax Deduction: U.S. tax code allows homeowners to deduct property taxes they have paid from their total income.

Punch List: a list of items that have yet to be completed when a final walk through of a new home occurs.

Purchase Offer (Sales Contract): A written document detailing an offer made to purchase a property, which is often amended several times in the negotiation process. When all parties involved in the sale sign a purchase offer it becomes a legally binding contract.

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Qualifying Ratios: guidelines used by lenders to calculate how much money a homebuyer is qualified to borrow / able to repay.

Quitclaim Deed: a deed that transfers ownership of a property but without any guarantee of a clear title.

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RESPA: Real Estate Settlement Procedures Act; a law that protects consumers from being taken advantage of during the process of a residential real estate purchase, and requires lenders to disclose all settlement practices, costs, and relationships.

Rate Cap: a limit on how much interest rates can go up or down over any given span or over the life of an adjustable-rate mortgage (ARM).

Rate Lock: a commitment guaranteeing a specific interest rate over a period of time.

Real Estate Agent: a professional who is licensed to negotiate and arrange real estate sales.

Real Property: land and all natural resources and permanent buildings on it.

REALTOR: a real estate broker or agent who is a member of the National Association of Realtors and its local and state associations.

Recorder (“Registrar of Deeds” or “County Clerk”): a public official who keeps records of transactions regarding real property.

Recording: the recording in a county clerk’s office of an executed legal document, such as deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage.

Recording Fees: fees associated with recording a deed or other legal document with the appropriate government agency.

Refinancing: paying off one loan by obtaining another in order to get a better rate.

Rehabilitation Mortgage: a mortgage that covers the costs of rehabilitating a property. Sometimes borrowers can get one combined mortgage for the property itself and also repair/improvement costs.

Reinstatement Period: a period of time during the foreclosure process where the borrower has an opportunity to stop the foreclosure by paying all money owed to the lender.

Remaining Balance: the amount of principal that has not yet been paid off.

Remaining Term: the original loan term minus the number of payments that have been made.

Request for Notice: An officially recorded document that requires a trustee send a copy of a Notice of Default or Notice of Sale to the person who filed
the document.

Reverse Mortgage (HECM): a type of mortgage typically used by senior homeowners aged 62 and older in order to convert equity in their home to monthly income and/or line of credit. Typically a mortgage lender, bank, credit union or savings and loan association funds such FHA insured loans.

Right of First Refusal: a provision in an agreement where the owner of a property must give the first interested party an opportunity to purchase or lease a property before it is offered for sale or lease to other potential buyers.

Right of Redemption: A borrower’s right to reacquire property lost due to foreclosure proceedings. Note: Texas is a non-right of redemption State.

Risk Based Capital: an amount of capital needed to offset losses during adverse circumstances lasting for a ten year period.

Risk Based Pricing: Fee structure used by lenders that is based on risks associated with granting credit to someone with poor credit history.

Risk Scoring: an automated way to analyze a credit report in an unbiased manner and which takes into account late payments, outstanding debt, credit experience, and number of inquiries.

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Sale Leaseback (Sell and Rent Back): when a seller deeds property to a buyer for a payment and in return the buyer leases the property back to them.

Second Mortgage: a mortgage on property in addition to a first mortgage. If default happens the first mortgage must be paid before the second mortgage. Because second mortgages are usually more risky for lenders they carry a higher interest rate.

Secondary Mortgage Market: the buying and selling of mortgages. Investors purchase mortgage loans, which in turn provides lenders with capital for additional lending.

Secured Loan: a loan backed by collateral such as property.

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

Seller Take Back: an agreement where the owner of a property provides financing for a second mortgage. Such agreements are often combined with an assumed mortgage instead of using a portion of the seller’s equity.

Serious Delinquency: a mortgage that is more than 90 days past due.

Servicer: a company that collects mortgage payments from borrowers and manages escrow accounts.

Servicing: the collection of mortgage payments from borrowers and all related duties of a loan servicer.

Setback: the distance between a property line and where building can happen. Setbacks are used to make sure there is adequate spacing between buildings and from roads.

Settlement: another term for closing.

Settlement Statement: a document that details all closing costs and is required to be given to a borrower before or at the time of closing. Real estate commissions, loan fees, points, and escrow amounts are all items that appear in closing statements.

Special Forbearance: a type of loss mitigation where the lender arranges an adjusted repayment plan for the borrower which may include a temporary reduction or suspension of loan payments.

Sub-Prime Loan: typically includes loans to borrowers with credit scores under 660. “B” Loan or “B” paper are for those with scores from 620 – 659. “C” Loan or “C” Paper are typically for those with credit scores between 580 and 619. Because of the higher risk, sub-prime loans charge higher fees and interest rates.

Survey: a property schematic which shows legal boundaries, encroachments, rights of way, easements, improvement locations, and so on. Surveys are carried out by licensed surveyors and are normally required by lenders so they can verify the property’s features and boundaries are correctly described in the legal documents describing the property.

Sweat Equity: using labor to build or improve a home as a portion of the down payment.

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Third Party Origination: a process where lenders use a third party to partially or completely originate, process, underwrite, close, fund, or package mortgages it intends on delivering to the secondary mortgage market.

Terms: The interest rate and range of time agreed upon by the lender and the borrower to repay a loan.

Title (Deed): a document that legally transfers ownership of property from one party to another. A property deed is recorded on public record with the property description and the owner’s signature.

Title 1: FHA-insured loans which enable borrowers to make non-luxury improvements (like repairs or renovations) to their property. If a Title I loan is less than $7,500 it doesn’t require a property lien.

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

Title Defect: a claim on a property that is outstanding and so limits the ability to sell the property.

Title Insurance: an insurance policy guaranteeing the accuracy of a title search protecting against title record mistakes or claims to title. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event that a title defect is disclosed after the agreement is drawn up. An insurance policy that protects the buyer from title defects is called an owner’s policy.

Title Search: a way to check public records to be sure the seller is the true owner of the property and that there are no liens or other claims against the property.

Transfer Agent: a bank or trust company responsible for keeping a record of a company’s stockholders and issuing or canceling certificates as shares are bought and sold.

Transfer of Ownership: anytime property ownership is transferred from one party to another, and may include purchase of a property, assumption of mortgage debt, or any other land sale or trust device.

Transfer Taxes: State and local taxes that are charged for the transfer of real estate.

Truth-in-Lending: a federal law requiring lenders give full written disclosure of all fees, terms, and conditions associated with the loan.

Two Step Mortgage: an adjustable-rate mortgage (ARM) that has one interest rate for the first portion of its term and a different interest rate for the rest of the loan term.

Trustee: a person who holds or controls property for the benefit of another.

Trustee’s Deed: A deed issued by a trustee at a deed of trust foreclosure sale.

Trustee Sale (Sheriff’s Sale): An auction of real property conducted by a trustee.

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Underwriting: the process by which a loan application is analyzed to determine the amount of risk involved in making a loan to the given borrower.

Up Front Charges: the fees charged to homeowners by the lender at the time of closing a mortgage loan, such as broker’s fees, points, insurance, and other fees.

Upset Bid: a bid that is recorded but which was placed after a foreclosure sale has ended that was higher than the highest bid received during the actual foreclosure auction.

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VA (Department of Veterans Affairs): a federal agency that guarantees mortgage loans made to military veterans.

VA Mortgage: a mortgage loan guaranteed by the Department of Veterans Affairs (VA).

Variable Expenses: Costs or payments that may vary from one month to the next.

Variance: a special exemption of a zoning law to allow property to be used in a way that is different from an existing law.

Vested: a point in time when a person may withdraw funds from an investment
account without penalty.

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Walk Through: the final inspection of a property being sold to verify that any conditions specified in the purchase agreement have been completed.

Warranty Deed: a legal document that guarantees the seller is the rightful owner of the property, has the right to sell the property and that there are no liens against the property.

Writ: An order or mandatory process in writing issued in the name of a judicial officer or court for the recipient to perform or refrain from performing a specified act.

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Zoning: local laws established to control the uses of properties within a particular area. Zoning laws are used to separate residential land from areas of non-residential land like industry or businesses. Zoning ordinances may set several provisions to control such things as type of structure, lot size, setbacks, and uses of buildings and the property itself.