Glossary

Mortgage Terms Glossary

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A

Abstract of Title: A document that provides a detailed history of the transactions associated with a particular property. Typically, it is this document that a title insurance company or lawyer uses to make sure that there are no irregularities or problems that must be resolved before the buyer can complete the transaction.

Acceleration Clause: This is a provision within the mortgage agreement that permits the lender to demand that the full amount be remitted immediately if payments are missed or other stipulations of the mortgage contract are not met.

Accrued Interest: Interest that has been charged, but not yet paid.

Adjustable Rate Mortgage (ARM): A mortgage with a variable, or changing, interest rate, with the interest rate typically being correlated to an agreed upon guide, such as the prime rate or the Treasury Bill rate.

Adjustment Interval or Adjustment Period: The period of time between one Adjustable Rate Mortgage (ARM) interest adjustment and the next.

Agreement of Sale: A legally binding document, or contract, that is signed by both by the seller and the buyer that details all terms and conditions relating to the sale of the property.

Alternative Documentation : Using another type of formal document to provide required information in an acceptable manner, such as using bank statements instead of a requested written statement from the bank for proof of account balances.

Amortization: The paying down of the principal and the interest of a mortgage via an agreed upon payment schedule.

Amortization Schedule: A payment schedule designed to pay off a mortgage or other type of loan, with payments that include a portion of both principal and interest, within a designated time period.

Annual Percentage Rate (APR): The annual cost, including such things as fees related to the origination of the mortgage, mortgage insurance, and interest, of a mortgage, figured by federal regulations governing the means of calculations. Typically, the APR is at a rate that is a bit higher than the interest rate of the mortgage itself.

Application: A formal document containing the financial and other information necessary from the person seeking the mortgage to start the process of consideration and perhaps approval.

Application Fee: The amount that is charged to the borrower for processing the application, usually included in the loan closing costs.

Appraisal: A formal estimate, typically in document form, of the current worth of a property, which is calculated according to a variety of relevant factors, including condition of property, as well as those that affect quality of life, such as neighborhood and crime rates.

Appraisal Fee: The amount that a formally registered appraiser requests for services.

APR: An abbreviation for Annual Percentage Rate.

ARM: An abbreviation for Adjustable Rate Mortgage.

Assessment: This is the act of determining the value of a property in order to assign a tax amount.

Assignment: The formal process of shifting ownership from one person or entity to another.

Assumability: A mortgage term that permits the mortgage holder to sell the property to another who, if approved by the lender, would take on the mortgage with its preexisting terms and conditions.



Balance Sheet: A formal financial statement demonstrating the total net worth of a company, listing assets and liabilities, during a particular time period or on a specific date.

Balloon Mortgage: The type of this mortgage is typically short-term with a fixed rate, and features a large, or lump sum, payment due at the end, which is the remainder of the principal and is commonly referred to as a balloon payment.

Bankruptcy: A means of resolving debt that makes use of the federal court system to, depending on the type of bankruptcy applied for, restructure or eliminate debt obligations.

Bearer: One who holds a particular document, such as a title or deed, or owns a property.

Bequest: Assets or property given to another via a will.

Bill of Sale: Formal documentation of a sale of property that typically includes basic details of the property, to whom and by whom it was sold and the amount it was sold for.

Bi-weekly Mortgage: A mortgage agreement that is structured differently from the classic monthly payment schedule, having instead a payment schedule of every two weeks.

Blanket Mortgage: This type of mortgage encompasses more than one piece of property in a single mortgage agreement, with the combined value of the properties serving as collateral for the entire mortgage.

Bona Fide: A Latin term still in use today that means literally "good faith", and in terms of business and law means acting without intent to deceive or commit fraud.

Bond: A formal document, or debt instrument, that entitles the bearer to specific payments, often mortgage payments due on the real estate that is the collateral.

Borrower (Mortgagor): The person to whom the mortgage is granted and the individual responsible for seeing that it is paid in full according to the agreed upon terms and conditions.

Broker: An individual who, for a fee, facilitates transactions. A real estate broker, for example helps a buyer find the right property and seller, and a mortgage broker helps to match borrowers with lenders by accepting applications and approaching the best lender for the personal and financial circumstances of the borrower.

Buy-down: In this arrangement, the seller typically benefits from a higher selling price for the putting up money initially to let the lender assign lower monthly payments and interest rates to the mortgagor, who benefits from the reduced amount due monthly.

Buyer's Broker: A broker that an individual who wants to buy property hires to locate acceptable property to buy and, often, to handle the initial negotiations concerning the property, dealing with either the seller directly or the seller's broker.

Buyer's Market: A term used to describe the balance of power in the market when it tips towards the buyer, i.e., when there is an abundance of sellers as compared to the number of buyers, it is easier for the buyers to bargain for more favorable terms of sale.



Call Option: In this type of loan or mortgage agreement, the lender has the power to demand full payment before the payment schedule is completed.

Caps: These are limits that are agreed upon in the specific terms and conditions of a mortgage that prevent certain costs from rising above a specific level, such as monthly payment requirements or Adjustable Rate Mortgage interest rates, during a stated time period.

Caps (interest): These are limits that apply specifically to interest rates, limiting most typically the amount that interest rates can be increased during either the whole of an Adjustable Rate Mortgage or during an adjustment period.

Caps (payment): Limits of this nature refer specifically to the monthly payment and do not affect interest rates, which, as interest rates rise and the monthly payment is prevented from rising in response, can result in the monthly payments not being able to pay down both the principal and interest as planned, with the remaining interest being added to the principal.

Cash Out: This is a type of refinancing loan that permits the borrower to borrow more than the remainder of the mortgage itself, taking cash out, and as a result reducing the equity, or balance remaining between what the property is worth and what is owed on it.

Cashier's Check (or Bank Check): This is a check that is guaranteed because the person takes the money from his account and gives it to the bank in exchange for the check, which is then paid by the funds of the bank when cashed.

CC & Rs: See Covenants, Conditions & Restrictions, as this is the abbreviated form of the phrase.

Ceiling: This refers to the highest rate of interest that is permitted to be charged under the terms and conditions of an Adjustable Rate Mortgage.

Certificate of Eligibility: Required documentation that is obtained from the Veterans Administration, most often using form DD-214, called the Separation Paper, and form 1880, which is the formal request for a Certificate of Eligibility, for the purpose of demonstrating that the veteran is eligible for a loan guaranteed by the Veterans Administration.

Certificate of Occupancy: A formal statement issued by a municipal agency in order to verify that a residential space meets all the building and health regulations necessary for use as a residence.

Certificate of Reasonable Value (CRV): A document that states the results of an appraisal done for the purpose of setting the principal limit of a loan guaranteed by the Veterans Administration. In order for the CRV to be issued, the appraisal must be done by an appraiser from a list of those approved by the Veterans Administration.

Certificate of Title: A formal statement concerning the status of a title, prepared by a title company or an attorney, offering proof that the property has a clear and marketable title.

Certificate of Veteran Status: This is a formal statement, documenting that an individual has performed 90 or more consecutive days of active duty in the military or the reserves, which can be gotten from the Veterans Administration using by forms DD-214 and 26-8261a to request for certificate of veteran status, and can be used to get a lower down payment on certain types of FAHFHA-insured loans.

Certified Check: A check that is guaranteed by the account holder's bank to have sufficient funds, by the setting aside of the relevant amount in advance by that bank.

Chain of Title: The details of title transfers, chronologically, from the first owner of a property to the present owner.

Clear Title: A title that is free of any claims or disputes.

Closing (or Settlement): A meeting, usually including the lender, buyer and seller, to legally transfer ownership of property or funds between seller and buyer.

Closing Agent: A neutral party who is placed in possession of documents and funds during the property transfer transaction.

Closing Costs: Fees associated with mortgage agreements that are due to be paid at closing by either buyer or seller.

Closing/Settlement Statement: A document generated by the closing agent that details the costs of closing a loan or refinance agreement that must be paid at the finalizing of the transaction.

Cloud on Title: An outstanding lien, encumbrance, or other claim that could affect the ability of a property to be legally transferred.

Combined Loan to Value (CLTV): The total percentage of the property value that has been borrowed, determined by combining the balances due on all outstanding loans on the property.

COFI: Cost of Funds Index, an index based on weighted-average rates paid for deposits by 11TH Federal Home Loan Bank District member savings institutions, commonly used in adjustable rate loans.

Collateral: An asset held to secure a loan, for example, real property held as collateral to secure a mortgage loan.

Commission: The amount paid to a broker or real estate agent by a property seller for their services.

Commitment: A formal offer, including an account of the terms and commitments, by a lender to extend a loan to a borrower.

Condominium: A property in which one owns an individual dwelling or unit, and has an interest in common facilities.

Conforming Loan: A mortgage that meets the necessary standards to make it eligible to be purchased by Fannie Mae and Freddie Mac.

Construction APR: A federally mandated formula that determines the cost of a loan on a yearly rate basis over the loan term, including the period of construction. This formula takes into consideration the origination fees, points, insurance and monthly interest payments on the loan.

Construction Loan: A short-term loan agreement that allocates funds in installments to fund construction of homes or buildings as the work progresses.

Construction-to-Permanent (CTP) Loan : A construction loan that will, upon completion of construction, automatically convert to a permanent mortgage loan.

Contract of Sale: The written agreement of price, terms and conditions of a sale between buyer and seller.

Contingency: A condition that must be met before a sale may be closed or a contract may become legally binding.

Conventional Loan: A loan given by a private lender that is not guaranteed by a federal agency.

Conversion Clause: A stipulation included in some adjustable rate mortgages that allow a change to a fixed rate mortgage, usually following the first interest rate adjustment period.

Convertible ARMs: Adjustable rate mortgages that contain a clause allowing them to be converted to a fixed rate mortgage during a stated time period.

Conveyance: The legal transfer of such legal documents as deeds, mortgages, or leases.

Cost of Funds Index (COFI): An index based on weighted-average rates paid for deposits by 11TH Federal Home Loan Bank District member savings institutions, commonly used in adjustable rate loans.

Courier / Mail Fees: Charges related to the shipping expenses incurred by the closing agent in the shipment of loan documents and information.

Covenants, Conditions and Restrictions: A documents used with condominiums, or Planned Unit Developments that lists the allowed uses, restrictions, and requirements of the property.

Credit Report: A comprehensive credit history, used by lenders to evaluate the creditworthiness of a prospective borrower.

Credit Report Fee: An amount charged by a credit reporting agency to provide a copy of a credit report.



Debt-to-Income Ratio: A figure determined by a comparison of a borrower's gross income to the amount of monthly debt to which the borrower is obligated.

Deed: A legal document that describes a property, which is delivered to a buyer at closing, signed and witnessed, to legally transfer ownership of the property from the seller to the buyer.

Deed of Trust: A legal document that creates a lien on a property to be held as security for a lender to guarantee repayment of a loan or other debt.

Default: A failure to abide by legal terms of a contract, including a failure to meet payments on a loan agreement.

Deferred Interest: An amount added to a mortgage principal when the monthly payments do not yield an amount sufficient to cover interest charges on the loan.

Delinquency: Failure to meet payment obligations in a timely manner.

Deposit: Required payment with some lenders to defray the cost of a credit report and appraisal with application, often refundable if the potential borrower cancels before the lender incurs the costs of these services.

Depreciation: A decline in the value of a property.

Discount Points: Fees charged to a buyer by the lender to lower the interest rate of the loan. One point equals one percent of the loan amount.

Documentary Stamps: A stamp indicating that required taxes have been paid on deeds and mortgages when the property is transferred from one owner to another.

Document Review: A fee charged for the review process necessary to fund a loan.

Down Payment: The difference between the amount of funding provided by the mortgage lender, and the purchase price of the property.



Earnest Money: A deposit towards the down payment to show good faith on the part of the buyer at the signing of a purchase agreement.

ECOA: Equal Credit Opportunity Act, this federal statute states that no discrimination in credit availability can occur based on race, religion, age, national origin, marital status, sex, or the participation in public assistance programs.

Effective Interest Rate: The mortgage cost stated as a yearly rate.

Encumbrance: A claim attached to a property, such as delinquent taxes, or a lien.

Equal Credit Opportunity Act (ECOA): A federal statute stating that no discrimination in credit availability can occur based on race, religion, age, national origin, marital status, sex, or the participation in public assistance programs.

Equity: The financial interest an owner holds in a property, determined by calculating the difference between the market value of a home, and the amount still owed on an outstanding mortgage.

Equity Loan: A loan based on the amount of equity the borrower has in the home.

Errors and Omissions: A legal agreement for the borrower to allow clerical errors in reference to loan documents to be corrected in the future.

Escrow: 1. A neutral person who acts as custodian for the funds and documents during the property transaction between seller and buyer, or during the process of a refinancing agreement.

Escrow: 2. An account held and maintained by a lender, in trust, on behalf of a borrower for the payment of expenses such as taxes and insurance premiums, funded with a set amount collected with the monthly mortgage payment.

Escrow Account: An account held and managed by the lender on behalf of the borrower to pay expenses such as taxes and insurance, funded with an amount collected as a portion of monthly mortgage payments.

Escrow Officer: A person who handles the closing and transfer of ownership and title to the borrower.

Escrow Fee: A fee charged to the borrower for execution of the loan closing by an escrow agent, attorney, or a title agent.

Estimated Settlement (or Closing) Statement: A document that itemizes all costs and indicates the final amount the buyer will be required to pay at closing, provided by the closing agent several days before closing.

Expense-to-Income Ratio: A figure determined by a comparison of a borrower's gross income to the monthly housing and non-housing expenses of the borrower.



Fannie Mae (FNMA): Federal National Mortgage Association, this federally created corporation purchases residential mortgages and resells them. It also provides funding for mortgages.

Farmer's Home Administration (FmHA): A federal agency that is a division of the U.S. Department of Agriculture, that insures and finances loans meant for purchasing farms or rural housing.

FDIC: Federal Deposit Insurance Corporation, this federal agency created by Congress insures deposits in member banks to help in maintaining a stable banking system.

Federal Deposit Insurance Corporation (FDIC): A federal agency created by Congress to insure deposits in member banks to help in maintaining a stable banking system.

Federal Home Loan Bank Board (FHLBB): The United States central bank, established to regulate the lending practices of banks and the money supply.

Federal Housing Administration (FHA): The complete legal ownership of real property, accountable for all responsibilities, entitled to all property rights.

Federal Reserve: Federal Housing Administration, a division of the Department of Housing and Urban Development that insures mortgages made by private lenders for residential property, and sets underwriting standards.

Fee Simple: A government loan that is insured by the Federal Housing Administration, available to all qualified borrowers.

FHA Loan: Federal Home Loan Bank Board, the former name of a regulatory agency now renamed the Office of Thrift Supervision, this agency has oversight and regulatory responsibility for federally chartered savings institutions.

FHLBB: Federal Home Loan Mortgage Corporation, a federally created corporation that buys and resells FHA and VA loans to support the secondary mortgage market.

FHLMC: The first loan on a property, and primary in legal standing.

Fixed Rate: An interest rate that stays the same throughout the life of a loan.

Fixed-Rate Mortgage: A mortgage agreement in which the interest rate remains the same throughout the life of the loan.

Federal Home Loan Mortgage Corporation (FHLMC): Freddie Mac, this is a government created corporation that supports the secondary mortgage market, buying and selling FHA and VA loans.

Flood Certification: A fee that is paid for an agency to determine the flood status of a property, and notify the lender of any changes to that status over the life of the mortgage.

Flood Insurance: Required by the federal government in flood zone areas, this insurance covers property damage or loss due to flooding.

Floor: The lowest possible rate paid on an adjustable rate mortgage.

Federal National Mortgage Association (FNMA): Also called Fannie Mae, this federally created corporation purchases residential mortgages and resells them. It also provides funding for mortgages.

FICO Score: A credit score that estimates the creditworthiness of a person based on history with lenders, such as credit card companies, and public records of bankruptcy, judgments, and collection accounts using evaluation methods developed by Fair, Isaac and Co.

Forbearance: This is a postponement of foreclosure proceedings to give a borrower time to pay the past due balance.

Foreclosure (or Repossession): The legal process of forced sale by the lender when there is a default of mortgage payments on the part of the borrower.

Freddie Mac (FHLMC): A government corporation created to support the secondary mortgage market, it buys and sells FHA and VA loans.

Fully Indexed Rate: The total interest rate on an adjustable rate mortgage, figured by adding the margin to the rate of the index used.



Ginnie Mae: Government National Mortgage Association, an agency that purchases mortgages from lenders, then securitizes and resells them to investors.

GNMA: Government National Mortgage Association, purchases mortgages from lenders, to securitize and resell to investors.

(GNMA, or Ginnie Mae): A government-owned agency that purchases mortgages from lenders, to securitize and resell them to investors.

Good Faith Estimate: A written estimate that is required to be provided by the lender within three days of the loan application, detailing the expected closing costs to be paid by the borrower.

Graduated Payment Mortgage (GPM): a loan that begins with lower payments that rise in increments over the initial few years of the term, then remain fixed.

Grace Period: A set amount of time after the due date that a loan payment can be made without late penalties incurred.

Gross Income: Income totaled before any tax or expense is deducted.

Growing Equity Mortgage: A loan with a fixed interest rate, but monthly payments that increase annually in order to reduce the loan balance more quickly, and decrease the term of the loan.

Guarantee or Guaranty: a agreement of legal obligation by one party to be responsible for the debt or obligation of another should they default

Gross Monthly Income: monthly income before any deductions, such as taxes, are taken. This is the income standard used in the origination process of a loan to asses the ability of the borrower to meet payments.



Hazard Insurance: an insurance policy, also called Home Owner's Insurance, that covers loss or damage due to fire or natural disasters

Heloc 10/10: another version of the home equity line of credit, allowing the homeowner to draw against home equity for ten years, then after the draw period has passed the remaining balance owed is paid over the following ten years

Home Equity Loan: a fixed rate loan, with a fixed payment, and term generally ranging from five to fifteen years, that is based on the amount of homeowner equity

Home Equity Line of Credit: an open-ended loan backed by the home equity, paid as revolving debt much like a credit card.

Homeowners Warranty: an insurance policy that warrantees certain mechanical systems and major appliances against breakdown

Housing and Urban Development (HUD): a federal agency that administers national housing and community development policies, and has oversight responsibility of the Federal Housing Administration

Housing Code: minimum standards for safe and sanitary dwellings set by local government ordinances upon all residential properties

Housing Expense-to-Income Ratio: this ratio determines the percentage of income dedicated to housing expenses by dividing housing expense by the gross monthly income of the borrower.

HUD-1 Settlement Statement: A legal document required by the federal government that details the closing costs and expenses for the purchase of a home.



Impound (or Reserves): A portion of the monthly mortgage payment paid by the borrower that is held by the lender to pay such expenses as taxes and insurance.

Impound Account: Also known as an escrow account, this is an account that a lender holds and administers for the payment of such expenses as taxes and insurance on behalf of the borrower, funded by monthly contributions included in the mortgage payment.

Index: Financial tables, or published rates used by a lender to determine interest to be charged on an adjustable rate mortgage. Common indexes used include the Prime Rate, Treasury bills, the LIBOR, and COFI.

Initial Rate: The interest rate paid on an adjustable rate mortgage during the first interval.

Insolvency: The inability of a person to pay debts and obligations in a timely fashion.

Interest: A percentage based fee charged by the lender for the service of granting the loan.

Interest Rate: The fee for borrowing, which is expressed in terms of a percentage of the entire amount.

Interest Rate Cap: A provision included in an adjustable rate mortgage to protect against drastic fluctuation in interest rates.



Joint Liability: Two or more persons share liability for a debt, with each liable for the full amount.

Joint Tenancy: A provision that stipulates, with ownership of a property shared by two or more persons, that the survivor takes the share of the deceased.

Jumbo Loan: A loan, usually with a higher interest rate, in which the principal balance is too large to qualify for purchase by Fannie Mae and Freddie Mac.

Junior Mortgage: A mortgage that has secondary legal standing to a first, or senior, mortgage; the senior mortgage to be paid first in the event of a foreclosure.



Late Charge: A fee charged by the lender as a penalty when a borrower makes payment after the due date.

Lease-Purchase Mortgage Loan: A loan financing option in which a non-profit organization leases a property, with option to buy to a qualified low or moderate income borrower, with the monthly rent payments used to pay mortgage installments, and to fund a savings program for a down payment.

Lender: The entity offering or originating a loan, such as a bank, mortgage broker, or mortgage company.

Lender's Title Insurance: An insurance premium to a title insurance firm that assures clean property title, insuring that there are no liens or attachments on the property to interfere with the legal transfer of the property.

LIBOR (London Interbank Offered Rate): An index used to compute changes in interest rates in adjustable rate mortgages, popularly used in interest only loan agreements.

Lien: A legal right held by some creditors to have an outstanding debt to them paid upon sale of the debtor's property.

Lifetime Interest Rate Cap: A provision specifying the highest interest rate that the borrower can be charged over the life of an adjustable rate loan.

Loan Administration (or Loan Servicing): The handling of the details and responsibilities related to the loan, such as the collection of payments, acting as the escrow agent, and foreclosure in the event of default.

Loan Application: A document that lists relevant details and information about the prospective borrower and the property to be purchased, required by the lender for loan processing and approval.

Loan Application Fee: Compensation paid by a prospective borrower to the lender upon applying for a loan that can include charges for services such as property appraisal, and a credit report.

Loan Origination Fee (Processing Fee): Compensation to the lender for the work and expenses involved in processing the mortgage loan.

Loan Servicing (or Loan Administration): The responsibility to collect loan payments, administer escrows, foreclose in the case of default, and all other responsibilities related to the proper management of the loan.

Lock or Lock In: A guarantee given by the lender that the interest rate and points will remain the same for the period between loan application and the closing date of a loan.

Loan to Value (LTV) Ratio: the amount borrowed compared to the total property value, determining the percentage of total value that is borrowed.

LTV: Loan to Value Ratio



Margin: This describes the amount, in terms of percentage, that is added or subtracted from the index by a lender in determining the rate of interest at points in time : adjustment periods -- specified by the conditions and terms of a mortgage or loan that has an adjustable rate.

Marketable Title : A clear title, with no liens, or defects that would prevent transfer of property.

Market Value: Also called market price, this is the price determined by buyers and sellers in a given area, the price a seller is willing to accept, and the amount a buyer is willing to pay given a reasonable amount of time listed for sale.

Maximum Rate: The most expensive interest rate allowed to be charged during the life of a loan.

MIP (Mortgage Insurance Premium): Used with Government loans, such as FHA and VA loans, this is an insurance policy purchased by a borrower to insure against loan default.

Monthly Housing Expense: The total amount of insurance, taxes, principal, and interest paid monthly.

Mortgagee: The lender of funds in a mortgage loan agreement.

Mortgage: The legal documentation that creates a security lien on a property. In some jurisdictions, a Deed of Trust is used for the same purpose.

Mortgage Banker: A lender that handles loan origination services and funding of loans, then sells and services these loans.

Mortgage Broker: A person or company that arranges loans for potential borrowers, but does not fund them, placing these loans with lenders.

Mortgage Insurance: An insurance policy purchased by the borrower to protect the interests of the lender in case of loan default, usually required on loans with a down payment that is less than 20% of the total purchase price.

Mortgage Loan: A loan secured by a property held as collateral in case of default.

Mortgagor: The person who is borrowing funds in a mortgage transaction.



Negative Amortization: An increase in the balance of principal resulting from payments not sufficient to include the accrued interest on a loan; usually an issue that stems from payment caps that can cause deferred interest to be added to the loan balance.

Net: Amount remaining after taxes are deducted.

Net Effective Income: Gross income after the deduction of federal income tax.

Non Assumption Clause: A provision in a loan contract that states that there will be no assumption of the mortgage by another borrower without approval given first by the lender.

Nondischargeable Debt: Outstanding debts that cannot legally be forgiven in a bankruptcy proceeding, such as taxes.

Notice of Default: A written notification to the borrower that a loan is in default and legal action may result.

Note: A promissory statement that details the legal terms of a loan, and a legal obligation to repay.



Office of Comptroller of the Currency: The federal regulatory body that supervises and regulates banks that hold a federal charter.

Office of Thrift Supervision: The federal agency that supervises and regulates savings institutions that hold a federal charter.

Origination Fee: Compensation made to the lender for the work involved in the processing of the loan.

Owner Financing: A loan option in which the seller provides partial or full financing to the buyer.



Payment Cap: A provision of an adjustable rate mortgage that limits the amount a borrower's payment will increase due to fluctuation in interest rates.

Per Diem Interest: The amount of interest accrued daily on a loan.

Periodic Interest Rate Cap: A provision that limits the increase of rates in any one adjustment period.

Permanent Loan: A mortgage with a term of more than 10 years.

Pledged Account Mortgage (PAM): In this type of mortgage, a pledged savings account is acquired, with the funds used to gradually reduce the amount of the monthly loan payments.

PITI: The payment amount including the payment of principal, interest, taxes and insurance that are due monthly, calculated by a lender.

Points (or Discount Points): Fees charged to a buyer by the lender to lower the interest rate of the loan. One point equals one percent of the loan amount.

Power of Attorney: The legal authorization of one person to act on behalf of another.

Prepaid Expenses: Expenses such as insurance, taxes, that have been paid in advance by the seller, and are due to be reimbursed by the buyer at closing.

Prepaid Interest: A payment made by the borrower at closing to cover the loan interest assessed for the period between the closing date, and the end of the month during which the loan is closed.

Prepaid Mortgage Insurance (PMI): Insurance required by some lenders that is purchased by the borrower to protect the lender's interests against possible default.

Prepayment : Payment of loan principal before it is due, either in full, or in part.

Prepayment Penalty: A penalty fee that a lender may assess for a loan paid in full before the agreed upon term.

Prequalification: The estimated amount that a prospective borrower will be eligible to borrow. This estimate is done before the application for a loan.

Primary Mortgage Market: The lending market, in which mortgages are originated, including commercial banks, savings banks and credit unions, among others. These lenders sometimes resell mortgages in the secondary market.

Prime Rate: The interest rate charged by commercial banks to the most creditworthy, usually corporations, often used as an index to set rates of interest for other lending markets.

Principal: The amount of a loan, not including interest costs.

Private Mortgage Insurance (PMI): An insurance policy purchased by the property buyer, often required by a lender to protect their interests if the down payment is less than 20% of purchase price of the property.

Processing Fees: Compensation to the lender for the costs associated with loan preparation, such as application and document review, title procurement, and making closing arrangements.

Processed/Processing: The review period between application and closing of a loan during which the loan processor will verify the documents provided by the borrower, prepare property and insurance documents, and make the closing arrangements.

Profit and Loss Statement: Often required proof of income for the self-employed borrower, this financial disclosure statement details sales, expenses, and profits on a quarterly basis.

Property Tax: A municipal tax assessed on the basis of property value.

PUD (Planned Unit Development): A development or subdivision that includes a planned selection of varied land uses, such as housing, shopping, and recreation, often owned and maintained by a homeowner's association.

Purchase Agreement: Written terms and conditions under which a property will be purchased, in contract form, signed by both buyer and seller.



Rate Lock or Lock-In: A set time period, usually from loan application until closing, when the lender offers a guaranteed interest rate, to insure that the rate will not rise during the process.

Real Estate Broker: An agent who acts as representative to either the buyer or seller during a real estate transaction.

Real Estate Settlement Procedures Act: A law requiring lenders to give the buyer advance disclosure of closing costs.

Real Property: A parcel of land and all the permanent improvements upon it.

Realtor: A real estate agent who holds membership in the National Association of Realtors.

Rescission: To void a mortgage loan agreement, allowed by law within three business days of signing as long as that loan is not used for the purchase of a home.

Reclamation: The right of the titleholder of a property to reclaim it from the debtor in the instance of a bankruptcy.

Reconveyance: The legal transfer of a property back to the owner after the repayment of a mortgage is completed.

Recording: To enter documents showing legal title of a property into the system of public records.

Recording Fee: The compensation paid to an agent to enter the legal sale of a property into the public records system.

Refinancing: Payment in full of a mortgage with the proceeds from a new loan with the same property held as security.

Rent With Option To Buy: A financing alternative that involves the lease of a home from a nonprofit group, with the option to purchase, offered to qualified persons of low or moderate income. The rent paid by the buyer monthly is applied to both mortgage payments, and a savings towards a down payment.

Repossession (or Foreclosure): Usually due to default of the loan payments, this legal process that terminates an owner's rights to property, and sale is forced, with the proceeds used against the debt.

Rescission: A federal regulation that insures the right of a borrower to void a mortgage agreement within three business days of signing if this mortgage is a refinance loan on the primary residence of the borrower.

RESPA: Real Estate Settlement Procedures Act; this law requires lenders to provide advance disclosure of closing costs.

Reverse Annuity Mortgage (RAM): This variation of the reverse mortgage provides a lump sum, which is then used for the purchase of an annuity that gives the borrower a life-long monthly income.

Right to Cancel: The legal ability to void a loan agreement within three business days of signing, when the loan is a refinance agreement on a primary residence.



Sale Agreement: The stated terms and conditions of sale of a property, in contract form, signed by both buyer and seller.

Satisfaction: Payment in full of a debt, satisfying the obligation.

Second Mortgage: A loan on a property that is already named as collateral in an earlier loan. The legal claim on the property by the second mortgage is subordinate to that of the first.

Secondary Mortgage Market: The market where existing mortgages are traded. Primary lenders will often sell mortgages in order to generate capitol for the origination of new loans. Investors such as Fannie Mae and Freddie Mac trade in this market.

Security Instruments: The legal documents that allow a lender to act as security for a loan, and to procure and record a legal lien on the property that is the subject of the loan.

Servicing (or Loan Administration): The management of a loan, such as collecting payments, acting as the escrow agent , and foreclosure in the case of loan default.

Settlement (or Closing): A meeting between the closing agent, seller and buyer to finalize the sale of property, legally transferring the title and the funds involved.

Settlement Costs: Fees and expenses, other than the price of the property, paid by the buyer and/or the seller during the transfer of property ownership, or closing of the transaction.

Settlement Cost (HUD guide): A consumer guide booklet produced by the Department of Housing and Urban Development (HUD) that outlines the lending process for those who have submitted loan applications.

Settlement Sheet: A document prepared at closing that details the costs payable at closing, and determines the net payment of the buyer, and the net proceeds of the seller.

Shared Appreciation Mortgage (SAM): A loan in which the interest rate given to the borrower is below market rate, in exchange for the lender being given a portion of future property value appreciation.

Signature Affidavit: The documentation showing borrower's legal name and signature.

Signing Fee: The cost for the services of a notary or signing service to execute loan documentation.

Simple Interest: Interest charged on the principal balance only.

Start Rate: The interest rate paid on an outstanding balance during an introductory period, usually thirty days.

Subsidized Second Mortgage: a funding alternative meant for moderate to low income borrowers; this financing option includes a down payment, and first mortgage, along with funds provided by a public housing agencies, or non-profit organizations. The second mortgage typically carries a low interest rate if any, and payment is often deferred. Often, part of the debt may be forgiven for each year the purchasing family resides in the home.

Survey: Prepared by a registered land surveyor, a survey is a measurement of land showing location and dimensions of both the land, and any buildings upon it.

Sweat Equity: Increased property value due to improvements made by the purchaser.



Tax Impound: An account held in trust by a lender used to pay such expenses as homeowner's insurance and property taxes on behalf of the borrower. The funds for deposit in this account are generally collected with the monthly mortgage payments.

Tax Lien: The public sale by a municipal authority of a property due to default on the property taxes due.

Tax Sale: The public sale by a municipal authority of a property due to default on the property taxes due.

Tax Service Fee: This fee is charged by the lender to compensate agencies hired to monitor the property tax account of a property to protect the lenders security interest in the property.

Term: the predetermined number of years during which a loan will be repaid.

Title: A legal document that proves ownership, rights of ownership, and possession of a property.

Title Company: A company that provides insurance on property title.

Title Insurance: An insurance policy that protects the policyholder from loss due to a dispute regarding the legal ownership of a property, available to protect both lender and buyer.

Title Search: A search of municipal documentation to verify that no liens or claims exist against the property, and that the seller holds legal title.

Transfer Tax: A tax collected in some jurisdictions when title is transferred from one owner to another.

Trust Account: An account held for the purpose of managing money collected for the clients of an escrow company or broker.

Trustee: A person legally responsible for the property of another to hold and administer in their best interests.

Truth-In-Lending Act: A federal law requiring that the lender submit to the potential borrower, within three days of application, a written disclosure of mortgage terms.

Two-Step Mortgage: A loan which begins with a below market interest rate for a specified number of years, commonly 7-10, then receives a higher interest rate that is adjusted to market rate.



Underwriting: The evaluation and verification of a potential borrower's credit, assets, employment status and related information to assess risk for the purpose of loan approval.

Usury: Interest above and beyond the legal interest rate set forth by law.



VA Loan: Restricted to persons who are qualified through military service or other entitlements, and guaranteed by the Dept. of Veterans Affairs, this is a low or no down payment loan.

Variable Rate Mortgage: A mortgage with an interest rate that fluctuates based on a pre-selected index. With some limitations, the payment amount and interest rate rise and fall based on market activity.

Variable Rate: An interest rate that periodically varies in conjunction with an index.

Verification of Deposit (VOD): A document of verification signed by the borrower's bank or financial institution attesting to the account balance and history of the borrower.

Verification of Employment (VOE): A document of verification signed by the employer of a borrower attesting to the position and employment income of the borrower.

Vesting: The conferring of the title of ownership or right of possession and use of property; or the portion of a title report that states those rights.



Waiver: voluntary legal surrender of specific rights or privileges

Walk-through: A final examination of the home to identify problems to be corrected before closing.

Wire Transfer Fee: The transaction fee charged by the bank to transfer loan proceeds by electronic wire.

Wraparound Mortgage: A second mortgage that allows an existing loan and a new loan to be combined, at an interest rate that falls between the original loan rate and the current market rate.



Zoning Ordinances (or Zoning Regulations): Regulations for the usage of properties and building codes established and enforced by local governments

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