Collateral
An asset that is used to secure a loan. Generally, this asset will be seized and liquidated if a loan goes into default.
Commission
Money paid to a real estate agent or broker by the seller as compensation for locating a buyer and helping negotiate a sale.
Commitment
A written agreement, between a lender and a borrower to loan money at a future date subject to the stated conditions.
Condemnation
A determination by a governmental agency that a particular building is unsafe or unfit for habitability.
Condominium
Individual ownership (title) of a unit and an individual interest in the common areas and facilities which serve the project.
Construction Loan
A short term interim loan for financing the cost of construction. The lender makes payments to the builder as the work progresses.
Contractor
A person who contracts to construct buildings. Generally, there are contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building and others.
Conventional Loan
A mortgage not insured or guaranteed by the federal government.
Cooperative Housing
An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation that entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.
Cosigner
Another person who signs your loan and assumes equal responsibility for its repayment.
Credit Bureau
An agency that keeps consumers' credit records in its database.
Credit History
The record of how you've borrowed and repaid debts.
Credit Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her income. See Housing Expenses-to-Income Ratio.
Credit-related Insurance
Health, life, or accident insurance designed to pay the outstanding balance of debt in the event of a catastrophe.
Credit Scoring System
A statistical system used to profile individuals pursuant to various characteristics relevant to creditworthiness.
Creditor
A person or business to whom money is owed.
Creditworthiness
Ability and willingness to repay debts.
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Deed
A formal written instrument which serves as proof that title to real property is vested in an individual, group or entity.
Deed of Trust
In some states, this document is used in lieu of a mortgage to secure the payment of a note.
Default
Failure to repay a loan or otherwise meet the terms of your credit agreement.
Demand
An order for funds. When the seller's loan is to be paid in full through escrow, escrow must request and receive a written demand for payment to use the necessary documents to release the loan.
Deferred Interest
See Negative Amortization.
Delinquency
Failure to make required payments on time, which can lead to default or foreclosure.
Department of Rural Economic and Community Development, The
Formerly the Farmers Home Administration (FMHA), provides financing to farmers and other qualified borrowers.
Department of Veterans Affairs (VA)
An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.
Depreciation
Decline in value of a house due to wear and tear, negative changes in the neighborhood, or any other reason.
Disclosures
Data that must be given to consumers about their financial dealings.
Discount Points
Prepaid interest charged at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would
cost $2,000).
Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when real
estate title passes from one owner to another.
Down Payment
Money paid to make up the difference between the purchase price and mortgage amount.
Due-On-Sale Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the remaining balance if the mortgage or holder sells the home.
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Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction.
Easement Rights
A right-of-way granted to a person or company granting access for a specific reason to or over the owner's land.
Elderly Applicant
As defined in the Equal Credit Opportunity Act, a person 62 or older.
Encroachment
An improvement that intrudes on another's property.
Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value.
Equal Credit Opportunity Act (ECOA)
A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity
The difference between the fair market value and current indebtedness
Equity Line of Credit
A form of open-end credit in which the home serves as collateral and against which the creditor may draw funds in the future.
Escrow
Refers to a neutral third party that follows the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.
Exception
An interest in real property which is excluded from the conveyance, or has been excluded in a prior conveyance. For instance, oil and mineral rights.
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Fair Market Value
Fair market value refers to the highest price that a buyer would pay, and lowest price a seller would accept, providing both parties were willing, but not compelled to buy.
Federal National Mortgage Association
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and affordable.
Federal Home Loan Mortgage Corporation (FHLMC)
Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is to insure residential mortgage loans made by private lenders.
FHA Loan
A loan insured by the Federal Housing Administration.
FHA Mortgage Insurance
Protects the lender against loss in the event of consumer default.
Finance Charge
The total dollar amount that credit will cost the borrower.
Fixed-Rate Mortgage
A mortgage on which the interest rate is set (fixed) for the term of the loan.
Foreclosure
A legal process by which a property securing a mortgage is seized by the lender after a borrower defaults.
Freddie Mac
See Federal Home Loan Mortgage Corporation.
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Good Faith Estimate (GFE)
All lenders are required to give mortgage applicants an estimate of closing costs within three days of an application submission.
Graduated Payment Mortgage
Monthly payments on a mortgage that start out low and increase at a predetermined rate over the life of the loan.
General Warranty Deed
A deed which conveys both the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
Ginnie Mae
See Government National Mortgage Association.
Government National Mortgage Association (GNMA)
Also known as Ginnie Mae, provides sources of funds for residential mortgages insured or guaranteed by FHA or VA.
Grantee
The party to the transaction who is the buyer or recipient.
Grantor
The party to the transaction who is the seller or giver.
Gross Monthly Income
The total amount the borrower earns per month.
Guarantee
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a binding contract.
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Homeowners' Association
A non-profit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
Home Inspection
A thorough inspection by a professional (private/builder) that evaluates the structural and mechanical condition of a property.
Home Warranty
A service contract provided by the builder that covers workmanship of a new home and appliances in working condition in the home for a period of one year. In addition, some builders offer a 10-year extended warranty on major structural defects.
Hazard Insurance (Homeowners Insurance)
It insures against loss from catastrophic events. As each policy is different, it is important to review which events are involved.
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by their income.
HUD
U.S. Department of Housing and Urban Development.
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Impound
That portion of a borrower's monthly payment that is held by the lender to pay taxes, hazard insurance, mortgage insurance, and other items as they become due.
Index
A published interest rate which is used to adjust the interest rate for an ARM.
Interest-only loan option
An interest-only loan has no principal component for a specified period of time. The borrower pays only the interest, which increases his cash flow.
Interest
The fee charged for borrowing money.
Investor
Source of money for a lender.
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Joint Account
A credit account held by two or more people so that both can use the account and all assume legal responsibility to repay.
Jumbo Loan
A loan that is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Since jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
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Legal Description
The description of real property as used in legal documents. Usually, legal descriptions refer to recorded maps, surveys, or other public documents.
Late Payment
A payment made later than agreed upon in a credit contract and on which additional charges may be imposed. (A/K/A Late Fees)
Lessee
A person who executes a lease to get temporary use of property.
Lessor
An entity that provides temporary use of property typically in return for periodic payment.
Liability on an Account
Legal responsibility to repay debt.
Lien
A legal claim upon a piece of property that must be satisfied in order to transfer title.
Loan Commitment
A written promise to draw up a loan for a specified amount and term.
Loan-To-Value Ratio
The relationship between the mortgage amount and the sale price or appraised value of a property, expressed as a percentage.
Lock Term
A lender's guarantee of an interest rate for a set period of time.
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Margin
The amount added to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Mello-Roos (or Special Taxing District)
A legislative act that allows for the creation of a Community Facilities District assessment. This assessment ensures that critical facilities like schools, roads, water and sewer facilities, etc., are available to serve the first home owners. Assessments vary by district.
Market Value
The highest price that a willing buyer would pay and the lowest price a willing seller would accept for a property.
Marketable Title
A title that is free and clear of liens, clouds, or other title defects.
Mortgage
A lien or claim against real property given by the buyer to the lender as security for money borrowed.
Mortgage Commitment
A written notice from the bank or other lending institution stating it will advance mortgage funds in a specified amount, under specific terms, which will enable a buyer to purchase a house.
Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor's default. See Private Mortgage Insurance or FHA Mortgage Insurance.
Mortgage Insurance Premium
The payment made by a borrower to HUD to help defray the cost of the FHA mortgage insurance program.
Mortgage Note
A legal document that obligates a borrower to repay a loan.
Mortgage (open-ended)
A mortgage with a provision that allows borrowing additional money in the future without refinancing the loan or paying additional financing charges.
Mortgagee
The lender. (Granter of Credit)
Mortgagor
The borrower or homeowner. (Receiver of Credit)
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Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan.
Note
A note is a written agreement containing a promise of the signer to pay to a named person or bearer, a definite sum of money, at a specified date or on demand.
Notice of Default
Written, recorded notice that there has been a default under a deed of trust and/or note.
Net Effective Income
The borrower's gross income less federal income tax.
Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
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Open-End Credit
A line of credit that may be used continuously, includes credit cards, overdraft credit accounts, and home equity lines.
Open-End Lease
A lease that may involve a balloon payment based on the value of the property when it is surrendered.
Origination Fee
A fee charged by a lender for processing a loan application.
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PITI
Principal, interest, taxes, and insurance. Also known as monthly housing expense.
Payee
One to whom a check, money, note, etc. is payable.
Personal Property
Any property which is not land or improvements permanently affixed to land. Furniture, stocks, bonds, promissory notes, etc. are all personal property.
Planned Unit Development (PUD)
This is a zoning designation for property developed at the same or slightly higher overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial.
Plat
A map or chart of a lot, subdivision or community drafted by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
Points
See Discount Points.
Power of Attorney
A legal document authorizing another person to act on ones behalf.
Pre-Approval
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
Pre-Qualification
This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
Preliminary Title Report
A report regarding the current condition of the title, made by the title company before issuing a title policy.
Prepaids
Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Includes taxes, hazard insurance, private mortgage insurance and special assessments, as applicable.
Prepayment
A privilege in a mortgage allowing the borrower to make payments in advance of their actual due date.
Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.
Principal
The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)
Protects lenders against loss if a borrower defaults. Most lenders generally require mortgage insurance with less than a 20% down payment.
Pro-Rata
Adjustments such as taxes, insurance, rents, and interest on loans.
Property Taxes
Levies assess on real property. A local assessor can provide information on tax rates.
Purchase Agreement
A sales contract in which the purchaser agrees to buy certain real estate, and the seller agrees to sell under stated terms.
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Qualifying Ratios
Qualifying ratios, the ratio of your fixed monthly expenses to your gross monthly income, are used to determine how much you can afford to borrow.
Quitclaim Deed
A deed that transfers whatever interest the maker of the deed has in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is uncertain. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.
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Real Property
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
Rate
See Interest Rate.
Real Estate Broker
A licensed person who negotiates and transacts the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA)
A federal law that governs certain aspects of a real estate transaction.
Realtor©
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Reconveyance
The document which shows that a deed of trust affecting real property has been paid in full, and that the lender and trustee no longer have any interest in the property.
Recordation
Filing for record in the office of the county recorder.
Residential Mortgage Credit Report (RMCR)
An RMCR, requested by a lender, uses information from at least two of the three National Credit Bureaus, along with information on your loan application.
Rescission
With respect to mortgage refinancing, a law giving the homeowner three business days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Restrictive Covenants
Restrictions limiting the use of real property.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.
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Security
Property pledged to the creditor in the event of a default on a loan; see collateral.
Security Interest
The creditor's right to seize property or a portion of property offered as security.
Servicing
All the steps and operations lenders perform to maintain a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
Settlement
See Closing.
Settlement Costs
See Closing Costs.
Special Assessments
A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.
Special Lien
A lien that binds a specified piece of property, unlike a general lien, which is levied against all of one's assets.
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property.
Subdivision
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Swing Loan
A short-term loan given on the basis of a seller's equity.
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Tax
As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the municipality.
Term
The period of time between the date the loan obligation is incurred and the date the entire balance of the loan is due in full.
Term Mortgage
See Balloon Payment Mortgage.
Title
A document that gives proof of an individual's ownership of property.
Title Insurance
A policy which insures a mortgagor or homebuyer against errors in the title search.
Title Search
An examination of municipal records to determine the legal ownership of property, as is performed by a title company.
Trustee
A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another.
Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for a loan.
Two-Step Mortgage
A mortgage program in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan, due within 30 days notice at the end of seven or 10 years.
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Underwriting
The decision whether to make a loan to a potential homebuyer based on risk factors such as credit, employment, assets, and collateral, the matching of this risk to an appropriate rate, term or loan amount.
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VA Loan
A low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
VA Mortgage Funding Fee
A premium of up to 2 percent (depending on the size of the down payment) paid pursuant to a VA-backed loan.
Variable Rate Mortgage (VRM)
See Adjustable Rate Mortgage.
Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment
A document signed by the borrower's employer verifying his/her position, salary and other data.
Zoning Ordinances
The acts of an authorized local government establishing building codes and setting forth regulations for property land usage.
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Equal Housing Opportunity