- acceleration clause
A clause in your mortgage which allows the lender to demand payment
of the outstanding loan balance for various reasons. The most common
reasons for accelerating a loan are if the borrower defaults on the
loan or transfers title to another individual without informing the
A mortgage in which the interest changes periodically, according to
corresponding fluctuations in an index. All ARMs are tied to indexes.
The date the interest rate changes on an adjustable-rate mortgage
The loan payment consists of a portion which will be applied to pay
the accruing interest on a loan, with the remainder being applied to
the principal. Over time, the interest portion decreases as the loan
balance decreases, and the amount applied to principal increases so
that the loan is paid off (amortized) in the specified time.
A table which shows how much of each payment will be applied toward
principal and how much toward interest over the life of the loan. It
also shows the gradual decrease of the loan balance until it reaches
annual percentage rate
This is not the note rate on your loan. It is a value created according
to a government formula intended to reflect the true annual cost of
borrowing, expressed as a percentage. It works sort of like this, but
not exactly, so only use this as a guideline: deduct the closing costs
from your loan amount, then using your actual loan payment, calculate
what the interest rate would be on this amount instead of your actual
loan amount. You will come up with a number close to the APR. Because
you are using the same payment on a smaller amount, the APR is always
higher than the actual not rate on your loan.
The form used to apply for a mortgage loan, containing information about
a borrower’s income, savings, assets, debts, and more.
A written justification of the price paid for a property, primarily
based on an analysis of comparable sales of similar homes nearby.
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property. Since an appraisal
is based primarily on comparable sales, and the most recent sale is
the one on the property in question, the appraisal usually comes out
at the purchase price.
An individual qualified by education, training, and experience to estimate
the value of real property and personal property. Although some appraisers
work directly for mortgage lenders, most are independent.
The increase in the value of a property due to changes in market conditions,
inflation, or other causes.
The valuation placed on property by a public tax assessor for purposes
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property for taxation
Items of value owned by an individual. Assets that can be quickly converted
into cash are considered "liquid assets." These include bank accounts,
stocks, bonds, mutual funds, and so on. Other assets include real estate,
personal property, and debts owed to an individual by others.
When ownership of your mortgage is transferred from one company or individual
to another, it is called an assignment.
A mortgage that can be assumed by the buyer when a home is sold. Usually,
the borrower must "qualify" in order to assume the loan.
The term applied when a buyer assumes the seller’s mortgage.
A mortgage loan that requires the remaining principal balance be paid
at a specific point in time. For example, a loan may be amortized as
if it would be paid over a thirty year period, but requires that at
the end of the tenth year the entire remaining balance must be paid.
The final lump sum payment that is due at the termination of a balloon
By filing in federal bankruptcy court, an individual or individuals
can restructure or relieve themselves of debts and liabilities. Bankruptcies
are of various types, but the most common for an individual seem to
be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of
most types of debts. A borrower cannot usually qualify for an "A" paper
loan for a period of two years after the bankruptcy has been discharged
and requires the re-establishment of an ability to repay debt.
bill of sale
A written document that transfers title to personal property. For example,
when selling an automobile to acquire funds which will be used as a
source of down payment or for closing costs, the lender will usually
require the bill of sale (in addition to other items) to help document
this source of funds.
A mortgage in which you make payments every two weeks instead of once
a month. The basic result is that instead of making twelve monthly payments
during the year, you make thirteen. The extra payment reduces the principal,
substantially reducing the time it takes to pay off a thirty year mortgage.
Note: there are independent companies that encourage you
to set up bi-weekly payment schedules with them on your thirty year
mortgage. They charge a set-up fee and a transfer fee for every payment.
Your funds are deposited into a trust account from which your monthly
payment is then made, and the excess funds then remain in the trust
account until enough has accrued to make the additional payment which
will then be paid to reduce your principle. You could save money by
doing the same thing yourself, plus you have to have faith that once
you transfer money to them that they will actually transfer your funds
to your lender.
Usually refers to the daily buying and selling of thirty year treasury
bonds. Lenders follow this market intensely because as the yields of
bonds go up and down, fixed rate mortgages do approximately the same
thing. The same factors that affect the Treasury Bond market also affect
mortgage rates at the same time. That is why rates change daily, and
in a volatile market can and do change during the day as well.
Not used much anymore, bridge loans are obtained by those who have not
yet sold their previous property, but must close on a purchase property.
The bridge loan becomes the source of their funds for the down payment.
One reason for their fall from favor is that there are more and more
second mortgage lenders now that will lend at a high loan to value.
In addition, sellers often prefer to accept offers from buyers who have
already sold their property.
Broker has several meanings in different situations. Most Realtors are
"agents" who work under a "broker." Some agents are brokers as well,
either working form themselves or under another broker. In the mortgage
industry, broker usually refers to a company or individual that does
not lend the money for the loans themselves, but broker loans to larger
lenders or investors. (See the Home Loan Library that discusses the
different types of lenders). As a normal definition, a broker is anyone
who acts as an agent, bringing two parties together for any type of
transaction and earns a fee for doing so.
Usually refers to a fixed rate mortgage where the interest rate is "bought
down" for a temporary period, usually one to three years. After that
time and for the remainder of the term, the borrower’s payment is calculated
at the note rate. In order to buy down the initial rate for the temporary
payment, a lump sum is paid and held in an account used to supplement
the borrower’s monthly payment. These funds usually come from the seller
(or some other source) as a financial incentive to induce someone to
buy their property. A "lender funded buydown" is when the lender pays
the initial lump sum. They can accomplish this because the note rate
on the loan (after the buydown adjustments) will be higher than the
current market rate. One reason for doing this is because the borrower
may get to "qualify" at the start rate and can qualify for a higher
loan amount. Another reason is that a borrower may expect his earnings
to go up substantially in the near future, but wants a lower payment
Similar to the acceleration clause.
Adjustable Rate Mortgages have fluctuating interest rates, but those
fluctuations are usually limited to a certain amount. Those limitations
may apply to how much the loan may adjust over a six month period, an
annual period, and over the life of the loan, and are referred to as
"caps." Some ARMs, although they may have a life cap, allow the interest
rate to fluctuate freely, but require a certain minimum payment which
can change once a year. There is a limit on how much that payment can
change each year, and that limit is also referred to as a cap.
When a borrower refinances his mortgage at a higher amount than the
current loan balance with the intention of pulling out money for personal
use, it is referred to as a "cash out refinance."
certificate of deposit
A time deposit held in a bank which pays a certain amount of interest
to the depositor.
certificate of deposit
One of the indexes used for determining interest rate changes on some
adjustable rate mortgages. It is an average of what banks are paying
on certificates of deposit.
Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s
eligibility for a VA loan.
of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with
a VA loan, the Veterans Administration issues a CRV.
chain of title
An analysis of the transfers of title to a piece of property over the
A title that is free of liens or legal questions as to ownership of
This has different meanings in different states. In some states a real
estate transaction is not consider "closed" until the documents record
at the local recorders office. In others, the "closing" is a meeting
where all of the documents are signed and money changes hands.
Closing costs are separated into what are called "non-recurring closing
costs" and "pre-paid items." Non-recurring closing costs are any items
which are paid just once as a result of buying the property or obtaining
a loan. "Pre-paids" are items which recur over time, such as property
taxes and homeowners insurance. A lender makes an attempt to estimate
the amount of non-recurring closing costs and prepaid items on the Good
Faith Estimate which they must issue to the borrower within three days
of receiving a home loan application.
See Settlement Statement.
cloud on title
Any conditions revealed by a title search that adversely affect the
title to real estate. Usually clouds on title cannot be removed except
by deed, release, or court action.
IAn additional individual who is both obligated on the loan and is on
title to the property.
In a home loan, the property is the collateral. The borrower risks losing
the property if the loan is not repaid according to the terms of the
mortgage or deed of trust.
When a borrower falls behind, the lender contacts them in an effort
to bring the loan current. The loan goes to "collection." As part of
the collection effort, the lender must mail and record certain documents
in case they are eventually required to foreclose on the property.
Most salespeople earn commissions for the work that they do and there
are many sales professionals involved in each transaction, including
Realtors, loan officers, title representatives, attorneys, escrow representative,
and representatives for pest companies, home warranty companies, home
inspection companies, insurance agents, and more. The commissions are
paid out of the charges paid by the seller or buyer in the purchase
transaction. Realtors generally earn the largest commissions, followed
by lenders, then the others.
common area assessments
In some areas they are called Homeowners Association Fees. They are
charges paid to the Homeowners Association by the owners of the individual
units in a condominium or planned unit development (PUD) and are generally
used to maintain the property and common areas.
Those portions of a building, land, and amenities owned (or managed)
by a planned unit development (PUD) or condominium project's homeowners'
association (or a cooperative project's cooperative corporation) that
are used by all of the unit owners, who share in the common expenses
of their operation and maintenance. Common areas include swimming pools,
tennis courts, and other recreational facilities, as well as common
corridors of buildings, parking areas, means of ingress and egress,
An unwritten body of law based on general custom in England and used
to an extent in some states.
In some states, especially the southwest, property acquired by a married
couple during their marriage is considered to be owned jointly, except
under special circumstances. This is an outgrowth of the Spanish and
Mexican heritage of the area.
Recent sales of similar properties in nearby areas and used to help
determine the market value of a property. Also referred to as "comps."
A type of ownership in real property where all of the owners own the
property, common areas and buildings together, with the exception of
the interior of the unit to which they have title. Often mistakenly
referred to as a type of construction or development, it actually refers
to the type of ownership.
Changing the ownership of an existing building (usually a rental project)
to the condominium form of ownership.
A condominium project that has rental or registration desks, short-term
occupancy, food and telephone services, and daily cleaning services
and that is operated as a commercial hotel even though the units are
individually owned. These are often found in resort areas like Hawaii.
A short-term, interim loan for financing the cost of construction. The
lender makes payments to the builder at periodic intervals as the work
A condition that must be met before a contract is legally binding. For
example, home purchasers often include a contingency that specifies
that the contract is not binding until the purchaser obtains a satisfactory
home inspection report from a qualified home inspector.
An oral or written agreement to do or not to do a certain thing.
Refers to home loans other than government loans (VA and FHA).
IAn adjustable-rate mortgage that allows the borrower to change the
ARM to a fixed-rate mortgage within a specific time.
A type of multiple ownership in which the residents of a multiunit housing
complex own shares in the cooperative corporation that owns the property,
giving each resident the right to occupy a specific apartment or unit.
cost of funds index (COFI)
One of the indexes that is used to determine interest rate changes for
certain adjustable-rate mortgages. It represents the weighted-average
cost of savings, borrowings, and advances of the financial institutions
such as banks and savings & loans, in the 11th District of the Federal
Home Loan Bank.
An agreement in which a borrower receives something of value in exchange
for a promise to repay the lender at a later date.
A record of an individual's repayment of debt. Credit histories are
reviewed my mortgage lenders as one of the underwriting criteria in
determining credit risk.
A person to whom money is owed.
A report of an individual's credit history prepared by a credit bureau
and used by a lender in determining a loan applicant's creditworthiness.
An organization that gathers, records, updates, and stores financial
and public records information about the payment records of individuals
who are being considered for credit.
An amount owed to another.
The legal document conveying title to a property.
Short for "deed in lieu of foreclosure," this conveys title to the lender
when the borrower is in default and wants to avoid foreclosure. The
lender may or may not cease foreclosure activities if a borrower asks
to provide a deed-in-lieu. Regardless of whether the lender accepts
the deed-in-lieu, the avoidance and non-repayment of debt will most
likely show on a credit history. What a deed-in-lieu may prevent is
having the documents preparatory to a foreclosure being recorded and
become a matter of public record.
deed of trust
Some states, like California, do not record mortgages. Instead, they
record a deed of trust which is essentially the same thing.
Failure to make the mortgage payment within a specified period of time.
For first mortgages or first trust deeds, if a payment has still not
been made within 30 days of the due date, the loan is considered to
be in default.
Failure to make mortgage payments when mortgage payments are due. For
most mortgages, payments are due on the first day of the month. Even
though they may not charge a "late fee" for a number of days, the payment
is still considered to be late and the loan delinquent. When a loan
payment is more than 30 days late, most lenders report the late payment
to one or more credit bureaus.
A sum of money given in advance of a larger amount being expected in
the future. Often called in real estate as an "earnest money deposit."
A decline in the value of property; the opposite of appreciation. Depreciation
is also an accounting term which shows the declining monetary value
of an asset and is used as an expense to reduce taxable income. Since
this is not a true expense where money is actually paid, lenders will
add back depreciation expense for self-employed borrowers and count
it as income.
In the mortgage industry, this term is usually used in only in reference
to government loans, meaning FHA and VA loans. Discount points refer
to any "points" paid in addition to the one percent loan origination
fee. A "point" is one percent of the loan amount.
The part of the purchase price of a property that the buyer pays in
cash and does not finance with a mortgage.
A provision in a mortgage that allows the lender to demand repayment
in full if the borrower sells the property that serves as security for
earnest money deposit
A deposit made by the potential home buyer to show that he or she is
serious about buying the house.
A right of way giving persons other than the owner access to or over
An appraiser’s estimate of the physical condition of a building. The
actual age of a building may be shorter or longer than its effective
The right of a government to take private property for public use upon
payment of its fair market value. Eminent domain is the basis for condemnation
An improvement that intrudes illegally on another’s property.
Anything that affects or limits the fee simple title to a property,
such as mortgages, leases, easements, or restrictions.
Opportunity Act (ECOA)
A federal law that requires 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.
A homeowner's financial interest in a property. Equity is the difference
between the fair market value of the property and the amount still owed
on its mortgage and other liens.
An item of value, money, or documents deposited with a third party to
be delivered upon the fulfillment of a condition. For example, the earnest
money deposit is put into escrow until delivered to the seller when
the transaction is closed.
Once you close your purchase transaction, you may have an escrow account
or impound account with your lender. This means the amount you pay each
month includes an amount above what would be required if you were only
paying your principal and interest. The extra money is held in your
impound account (escrow account) for the payment of items like property
taxes and homeowner’s insurance when they come due. The lender pays
them with your money instead of you paying them yourself.
Once each year your lender will perform an "escrow analysis" to make
sure they are collecting the correct amount of money for the anticipated
The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.
The ownership interest of an individual in real property. The sum total
of all the real property and personal property owned by an individual
at time of death.
The lawful expulsion of an occupant from real property.
examination of title
The report on the title of a property from the public records or an
abstract of the title.
A written contract that gives a licensed real estate agent the exclusive
right to sell a property for a specified time.
A person named in a will to administer an estate. The court will appoint
an administrator if no executor is named. "Executrix" is the feminine
Fair Credit Reporting
A consumer protection law that regulates the disclosure of consumer
credit reports by consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one's credit record.
fair market value
The highest price that a buyer, willing but not compelled to buy, would
pay, and the lowest a seller, willing but not compelled to sell, would
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally
chartered, shareholder-owned company that is the nation's largest supplier
of home mortgage funds. For a discussion of the roles of Fannie Mae,
Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.
Mae's Community Home Buyer's Program
An income-based community lending model, under which mortgage insurers
and Fannie Mae offer flexible underwriting guidelines to increase a
low- or moderate-income family's buying power and to decrease the total
amount of cash needed to purchase a home. Borrowers who participate
in this model are required to attend pre-purchase home-buyer education
An agency of the U.S. Department of Housing and Urban Development (HUD).
Its main activity is the insuring of residential mortgage loans made
by private lenders. The FHA sets standards for construction and underwriting
but does not lend money or plan or construct housing.
The greatest possible interest a person can have in real estate.
fee simple estate
An unconditional, unlimited estate of inheritance that represents the
greatest estate and most extensive interest in land that can be enjoyed.
It is of perpetual duration. When the real estate is in a condominium
project, the unit owner is the exclusive owner only of the air space
within his or her portion of the building (the unit) and is an owner
in common with respect to the land and other common portions of the
A mortgage that is insured by the Federal Housing Administration (FHA).
Along with VA loans, an FHA loan will often be referred to as a government
A lender’s agreement to make a loan to a specific borrower on a specific
The mortgage that is in first place among any loans recorded against
a property. Usually refers to the date in which loans are recorded,
but there are exceptions.
A mortgage in which the interest rate does not change during the entire
term of the loan.
Personal property that becomes real property when attached in a permanent
manner to real estate.
Insurance that compensates for physical property damage resulting from
flooding. It is required for properties located in federally designated
The legal process by which a borrower in default under a mortgage is
deprived of his or her interest in the mortgaged property. This usually
involves a forced sale of the property at public auction with the proceeds
of the sale being applied to the mortgage debt.
An employer-sponsored investment plan that allows individuals to set
aside tax-deferred income for retirement or emergency purposes. 401(k)
plans are provided by employers that are private corporations. 403(b)
plans are provided by employers that are not for profit organizations.
Some administrators of 401(k)/403(b) plans allow for loans against the
monies you have accumulated in these plans. Loans against 401K plans
are an acceptable source of down payment for most types of loans.
government loan (mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA)
or guaranteed by the Department of Veterans Affairs (VA) or the Rural
Housing Service (RHS). Mortgages that are not government loans are classified
as conventional loans.
National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing
and Urban Development (HUD). Created by Congress on September 1, 1968,
GNMA performs the same role as Fannie Mae and Freddie Mac in providing
funds to lenders for making home loans. The difference is that Ginnie
Mae provides funds for government loans (FHA and VA)
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.