original principal balance
The total amount of principal owed on a mortgage before
any payments are made.
On a government loan the loan origination fee is one percent
of the loan amount, but additional points may be charged which are called
"discount points." One point equals one percent of the loan amount.
On a conventional loan, the loan origination fee refers to the total
number of points a borrower pays.
A property purchase transaction in which the property seller
provides all or part of the financing.
A payment that is not sufficient to cover the scheduled
monthly payment on a mortgage loan. Normally, a lender will not accept
a partial payment, but in times of hardship you can make this request
of the loan servicing collection department.
The date when a new monthly payment amount takes effect
on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage
(GPM). Generally, the payment change date occurs in the month immediately
after the interest rate adjustment date.
For an adjustable-rate mortgage
where the interest rate and the minimum payment amount fluctuate independently
of one another, this is a limit on the amount that payments can increase
or decrease during any one adjustment period.
For an adjustable-rate mortgage,
a limit on the amount that the interest rate can increase or decrease
during any one adjustment period, regardless of how high or low the
index might be.
Any property that is not real property.
This stands for principal, interest, taxes and insurance.
If you have an "impounded" loan, then your monthly payment to the lender
includes all of these and probably includes mortgage insurance as well.
If you do not have an impounded account, then the lender still calculates
this amount and uses it as part of determining your debt-to-income ratio.
A cash amount that a borrower must have on hand after making
a down payment and paying all closing costs for the purchase of a home.
The principal, interest, taxes, and insurance (PITI) reserves must equal
the amount that the borrower would have to pay for PITI for a predefined
number of months.
unit development (PUD)
A type of ownership where individuals
actually own the building or unit they live in, but common areas are
owned jointly with the other members of the development or association.
Contrast with condominium, where an individual actually owns the airspace
of his unit, but the buildings and common areas are owned jointly with
the others in the development or association.
A point is 1 percent of the amount
of the mortgage.
power of attorney
A legal document that authorizes another person to act
on one’s behalf. A power of attorney can grant complete authority or
can be limited to certain acts and/or certain periods of time.
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
Any amount paid to reduce the principal
balance of a loan before the due date. Payment in full on a mortgage
that may result from a sale of the property, the owner's decision to
pay off the loan in full, or a foreclosure. In each case, prepayment
means payment occurs before the loan has been fully amortized.
A fee that may be charged to a
borrower who pays off a loan before it is due.
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.
The interest rate that banks charge to their preferred
customers. Changes in the prime rate are widely publicized in the news
media and are used as the indexes in some adjustable rate mortgages,
especially home equity lines of credit. Changes in the prime rate do
not directly affect other types of mortgages, but the same factors that
influence the prime rate also affect the interest rates of mortgage
The amount borrowed or remaining unpaid.
The part of the monthly payment that reduces the remaining balance of
The outstanding balance of principal
on a mortgage. The principal balance does not include interest or any
other charges. See remaining balance.
interest, taxes, and insurance (PITI)
The four components of a monthly
mortgage payment on impounded loans. Principal refers to the part of
the monthly payment that reduces the remaining balance of the mortgage.
Interest is the fee charged for borrowing money. Taxes and insurance
refer to the amounts that are paid into an escrow account each month
for property taxes and mortgage and hazard insurance.
private mortgage insurance
Mortgage insurance that is provided
by a private mortgage insurance company to protect lenders against loss
if a borrower defaults. Most lenders generally require MI for a loan
with a loan-to-value (LTV) percentage in excess of 80 percent.
A written promise to repay a specified
amount over a specified period of time.
A meeting in an announced public location to sell property
to repay a mortgage that is in default.
Planned Unit Development
A project or subdivision that includes common property
that is owned and maintained by a homeowners' association for the benefit
and use of the individual PUD unit owners.
A written contract signed by the buyer and seller stating
the terms and conditions under which a property will be sold.
The acquisition of property through
the payment of money or its equivalent.
Calculations that are used in determining whether a borrower can
qualify for a mortgage. There are two ratios. The "top" or "front" ratio
is a calculation of the borrower’s monthly housing costs (principle,
taxes, insurance, mortgage insurance, homeowner’s association fees)
as a percentage of monthly income. The "back" or "bottom" ratio includes
housing costs as will as all other monthly debt.
A deed that transfers without warranty whatever interest or title a
grantor may have at the time the conveyance is made.
A commitment issued by a lender to a borrower or other mortgage originator
guaranteeing a specified interest rate for a specified period of time
at a specific cost.
A person licensed to negotiate and transact the sale of real estate.
Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance
notice of closing costs.
Land and appurtenances, including anything of a permanent nature such
as structures, trees, minerals, and the interest, benefits, and inherent
A real estate agent, broker or an associate who holds active membership
in a local real estate board that is affiliated with the National Association
The public official who keeps records of transactions that affect real
property in the area. Sometimes known as a "Registrar of Deeds" or "County
The noting in the registrar’s office of the details of a properly executed
legal document, such as a deed, a mortgage note, a satisfaction of mortgage,
or an extension of mortgage, thereby making it a part of the public
The process of paying off one loan with the proceeds from a new loan
using the same property as security.
The amount of principal that has not yet been repaid. See principal
The original amortization term minus the number of payments that have
Insurance that protects a landlord against loss of rent or rental value
due to fire or other casualty that renders the leased premises unavailable
for use and as a result of which the tenant is excused from paying rent.
An arrangement made to repay delinquent installments or advances.
replacement reserve fund
A fund set aside for replacement of common property in a condominium,
PUD, or cooperative project -- particularly that which has a short life
expectancy, such as carpeting, furniture, etc.
A credit arrangement, such as a credit card, that allows a customer
to borrow against a preapproved line of credit when purchasing goods
and services. The borrower is billed for the amount that is actually
borrowed plus any interest due.
of first refusal
A provision in an agreement that requires the owner of a property to
give another party the first opportunity to purchase or lease the property
before he or she offers it for sale or lease to others.
of ingress or egress
The right to enter or leave designated premises.
In joint tenancy, the right of survivors to acquire the interest of
a deceased joint tenant.
A technique in which a seller deeds property to a buyer for a consideration,
and the buyer simultaneously leases the property back to the seller.
A mortgage that has a lien position subordinate to the first mortgage.
The buying and selling of existing mortgages, usually as part of a "pool"
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing, often
in combination with an assumable mortgage.
An organization that collects principal and interest payments from borrowers
and manages borrowers’ escrow accounts. The servicer often services
mortgages that have been purchased by an investor in the secondary mortgage
The collection of mortgage payments from borrowers and related responsibilities
of a loan servicer.
See HUD1 Settlement Statement
A housing development that is created by dividing a tract of land into
individual lots for sale or lease.
Any mortgage or other lien that has a priority that is lower than that
of the first mortgage.
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.
Contribution to the construction or rehabilitation of a property in
the form of labor or services rather than cash.
As opposed to joint tenancy, when there are two or more individuals
on title to a piece of property, this type of ownership does not pass
ownership to the others in the event of death.
A process by which a lender uses another party to completely or partially
originate, process, underwrite, close, fund, or package the mortgages
it plans to deliver to the secondary mortgage market.
A legal document evidencing a person's right to or ownership of a property.
A company that specializes in examining and insuring titles to real
Insurance that protects the lender (lender's policy) or the buyer (owner's
policy) against loss arising from disputes over ownership of a property.
A check of the title records to ensure that the seller is the legal
owner of the property and that there are no liens or other claims outstanding.
Any means by which the ownership of a property changes hands. Lenders
consider all of the following situations to be a transfer of ownership:
the purchase of a property "subject to" the mortgage, the assumption
of the mortgage debt by the property purchaser, and any exchange of
possession of the property under a land sales contract or any other
land trust device.
State or local tax payable when title passes from one owner to another.
An index that is used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. It is based on the results of
auctions that the U.S. Treasury holds for its Treasury bills and securities
or is derived from the U.S. Treasury's daily yield curve, which is based
on the closing market bid yields on actively traded Treasury securities
in the over-the-counter market.
A federal law that requires lenders to fully disclose, in writing, the
terms and conditions of a mortgage, including the annual percentage
rate (APR) and other charges.
An adjustable-rate mortgage (ARM) that has one interest rate for the
first five or seven years of its mortgage term and a different interest
rate for the remainder of the amortization term.
to four-family property
A property that consists of a structure that provides living space (dwelling
units) for two to four families, although ownership of the structure
is evidenced by a single deed.
A fiduciary who holds or controls property for the benefit of another.
A mortgage that is guaranteed by the Department of Veterans Affairs
Having the right to use a portion of a fund such as an individual retirement
fund. For example, individuals who are 100 percent vested can withdraw
all of the funds that are set aside for them in a retirement fund. However,
taxes may be due on any funds that are actually withdrawn.
An agency of the federal government that guarantees residential mortgages
made to eligible veterans of the military services. The guarantee protects
the lender against loss and thus encourages lenders to make mortgages