Adjustable-Rate Mortgage (ARM)
A mortgage that permits the lender to
adjust its interest rate periodically on the
basis of changes in a specified index.
Amortization
The gradual repayment of a mortgage loan
by installments.
Amortization Schedule
Timetable for payment of a mortgage
showing amount of each payment applied to
interest and principal and remaining
balance.
Annual Percentage Rate (APR)
Cost of a mortgage stated as a yearly
rate - includes items such as interest, loan
origination fee (points), commitment fees,
and other credit costs.
Appraisal
Professional opinion or estimate of the
market value of a property.
Appreciation
An increase in the value of a property
because of changes in market conditions or
other causes.
Assessed Value
Valuation placed on property by a public
tax assessor to calculate property tax.
Assumable Mortgage
Mortgage that can be taken over (assumed)
by the buyer when the home is sold.
Assumption
Transfer of the seller’s existing
mortgage to the buyer.
Binder
Preliminary agreement between buyer and
seller that includes price and terms of the
contract.
Cap
In an adjustable-rate mortgage, limit as
to how much interest rate or mortgage
payments may increase or decrease.
Cash Reserve
Requirement by some lenders that buyers
have at least two months' mortgage payments
in cash remaining after closing.
Clear Title
Title free of liens or legal questions
about property ownership.
Closing
Meeting where property sale is finalized
by delivery of deed from seller to buyer;
this includes buyer’s signing mortgage
documents and paying closing costs.
Closing Costs
Expenses, over and above the property
price, incurred by buyer and seller in
transferring ownership of the property.
Commitment Letter
Formal offer by lender stating terms
under which it agrees to lend money to a
homebuyer.
Condominium
Form of property ownership in which
homeowner holds title to individual dwelling
unit, an undivided interest in common areas
of a multi-unit project, and sometimes,
exclusive use of certain common areas.
Contingency
Condition that must be met before a
contract is legally binding.
Conventional Mortgage
Mortgage not insured or guaranteed by
federal government.
Convertible ARM
Adjustable-Rate Mortgage that can be
converted to a Fixed-Rate Mortgage under
certain conditions.
Covenant
Mortgage clause obligating or restricting
borrower; violated covenant can result in
foreclosure.
Credit Report
Report of individual credit history
prepared by credit bureau or consumer
reporting agency and used by lender to
determine loan applicant’s
credit-worthiness.
Deed
Legal document conveying title to a
property.
Deed of Trust
Document used instead of a mortgage in
some states; title is conveyed to a trustee.
Default
Failure to make mortgage payments on a
timely basis or to comply with other
mortgage requirements.
Delinquency
Failure to make mortgage payments when
due.
Deposit
Deposit by a potential homebuyer to show
he or she is serious about buying a house.
Also known as Earnest Money.
Depreciation
Decline in property value.
Discount Points
One-time lender charge for originating a
loan; a point is 1 percent of the mortgage
amount. Also known as Points.
Down Payment
Part of purchase price that buyer pays in
cash and does not finance through a
mortgage.
Due-on-Sale Clause
Mortgage provision allowing lender to
demand repayment in full if borrower sells
the property that serves as mortgage
security.
Earnest Money
Deposit by a potential homebuyer to show
he or she is serious about buying a house.
Easement
Right of way giving people other than the
owner access to, or over, a property.
Equal Credit Opportunity Act
Federal law prohibiting lenders from
discriminating because of race, color,
religion, national origin, age, sex, marital
status, or receipt of income from public
assistance programs.
Equity
Homeowner's financial interest in a
property; the difference between fair market
value of the property and amount still owed
on the mortgage.
Escrow
The holding of documents and money by a
neutral third party before a closing; also,
an account held by the lender into which a
homeowner pays money for taxes and
insurance.
Fair Credit Reporting Act
Consumer protection law regulating
disclosure of consumer credit reports by
credit-reporting agencies and establishing
procedures for correcting mistakes on credit
records.
First Mortgage
Mortgage that has first claim to a
property in case of default.
Fixed-Rate Mortgage
Mortgage with an interest rate that
doesn’t change during the loan’s entire
term.
Foreclosure
Legal procedure by which a mortgaged
property may be sold if a mortgage is in
default.
Graduated-Payment Mortgage
Mortgage starting with low monthly
payments that increase at a predetermined
rate for a specified time.
Hazard Insurance
Insurance coverage that compensates for
physical damage to a property from fire,
wind, vandalism, or other hazards.
Homeowner’s Insurance
Insurance policy that combines personal
liability and hazard insurance coverage for
a dwelling and its contents.
Homeowner's Warranty
Type of insurance covering repairs to
specified parts of a house for a specific
period of time. The builder or property
seller provides this warranty as a condition
of the sale.
HUD-1 Statement
Computation of costs payable at closing
that determines the seller’s net proceeds
and the buyer’s net payment. Also known as
a Settlement statement.
Interest
Fee charged for borrowing money.
Interest Rate Cap
ARM provision limiting the amount
interest rates may increase in each
adjustment period, or over the life of a
mortgage. Also known as Lifetime cap.
Joint Tenancy
Form of co-ownership giving each tenant
equal interest and equal rights in a
property, including the right of
survivorship.
Late Charge
Penalty a borrower must pay when a
payment is made after the due date.
Lease-Purchase Mortgage Loan
Mortgage product that allows low- and
moderate-income homebuyers to lease a home
from a nonprofit organization with an option
to buy. Each month's rent payment consists
of principal, interest, taxes, and insurance
(PITI) payments on the first mortgage, plus
an extra amount earmarked for deposit to a
savings account in which money for a down
payment will accumulate.
Lien
Legal claim against a property that must
be paid off when the property is sold.
Lifetime Cap
ARM provision that limits the total
increase in interest rates over the life of
a loan.
Loan Servicing
The collecting of mortgage payments from
borrowers and the related responsibilities
of a loan servicer.
Loan-to-Value Percentage
Relationship between the principal
balance of a mortgage and the appraised
value (or sales price, if it is lower) of a
property.
Lock-in
Written agreement guaranteeing a
specified interest rate if a mortgage is
closed within a set time period. The lock-in
also usually specifies a number of points to
be paid at closing.
Mortgage
Legal document that pledges a property to
the lender as security for payment of a
debt.
Mortgage Banker
Company that originates mortgages
exclusively for resale on the secondary
market.
Mortgage Broker
Individual or company that acts as
intermediary between borrower and lender,
typically for a fee.
Mortgagee
Lender in a mortgage agreement.
Mortgage Insurance
Mortgage insurance provided by
nongovernment insurers that protects lenders
against loss if a borrower defaults. Most
lenders generally require PMI (Private
Mortgage Insurance) for loans with a
loan-to-value ratio of over 80 percent.
Mortgage Insurance Premium
Fee paid by a borrower to the FHA or a
private insurer for mortgage insurance.
Mortgagor
Borrower in a mortgage agreement.
Negative Amortization
Gradual increase in mortgage debt that
occurs when the monthly payment is not large
enough to cover the entire principal and
interest due. The amount of the shortfall is
added to the remaining balance.
Notice of Default
Formal written notice to a borrower that
a default has occurred and that legal action
may be taken.
Origination Fee
Fee paid to lender for processing a loan
application; this fee is stated in the form
of points (as a percentage of the mortgage
amount).
Owner Financing
Property purchase transaction in which
the seller provides all or part of the
financing.
Payment Cap
Provision of some ARMs limiting the
amount the interest rate can increase or
decrease during any adjustment period,
regardless of any index increase. Also known
as a Cap.
PITI
Principal, interest, taxes, and insurance
- the components of a monthly mortgage
payment.
Planned Unit Development (PUD)
Project or subdivision that consists of
common property owned and maintained by a
homeowners' association for the benefit and
use of the individual unit owners.
Points
One-time lender charge for originating a
loan; a point is 1 percent of the mortgage
amount.
Prepaids
Fees collected at closing to cover items
such as setting up escrow accounts for
property taxes, homeowner’s insurance, and
mortgage insurance premiums.
Prepayment Penalty
Fee that may be charged to a borrower who
pays off a loan before it is due.
Pre-Qualification
Process of determining, before applying
for loan, how much money a prospective
homebuyer is eligible to borrow.
Principal
Amount borrowed or remaining unpaid; that
part of the monthly payment that reduces the
outstanding balance of a mortgage.
Private Mortgage Insurance (PMI)
Mortgage insurance provided by
non-government insurers that protects
lenders against loss if a borrower defaults.
Most lenders generally require PMI for loans
with a loan-to-value ratio of over 80
percent.
Purchase and Sale Agreement
Written contract signed by the buyer and
seller stating terms and conditions under
which a property will be sold.
Qualifying Ratios
Guidelines applied by lenders to
determine how large a loan to grant a
homebuyer.
Radon
Invisible, odorless gas found in some
homes; in sufficient concentrations, radon
may cause health problems.
Rate Lock
Written agreement guaranteeing a
specified interest rate if a mortgage is
closed within a set time period. The lock-in
also usually specifies a number of points to
be paid at closing. Also known as a
Lock-in.
Real Estate Agent
Person licensed to negotiate and transact
the sale of real estate on behalf of the
property owner.
Real Estate Settlement Procedures Act
Consumer protection law, which requires,
among other things lenders to give borrowers
advance notice of closing costs.
Refinancing
Process of paying off one loan with the
proceeds from a new loan, using the same
property as security.
Rent With Option To Buy
Mortgage product that allows low- and
moderate-income homebuyers to lease a home
from a nonprofit organization with an option
to buy. Each month's rent payment consists
of principal, interest, taxes, and insurance
(PITI) payments on the first mortgage, plus
an extra amount earmarked for deposit to a
savings account in which money for a down
payment will accumulate. Also known as
Lease-purchase mortgage loan.
Second Mortgage
Mortgage on a property that already
carries a mortgage.
Secondary Mortgage Market
The buying and selling of existing
mortgages.
Seller Take-Back
Agreement in which property owner
provides financing, often in combination
with an assumed mortgage.
Settlement
Meeting where property sale is finalized
by delivery of deed from seller to buyer;
this includes buyer’s signing mortgage
documents and paying closing costs. Also
known as Closing.
Settlement Statement
Computation of costs payable at closing
that determines the seller’s net proceeds
and the buyer’s net payment (also known as a
HUD-1 statement).
Survey
Drawing or map showing precise legal
boundaries of a property, and location of
improvements, easements, rights of way,
encroachments, and other physical features.
Tenancy by Entirety
Type of joint ownership of property that
provides right of survivorship and is
available only to a husband and wife.
Tenancy in Common
Type of joint ownership in a property
without right of survivorship.
Title
Legal document evidencing a person's
right to, or ownership of, a property.
Title Company
Company specializing in examining and
insuring titles to real estate.
Title Insurance
Insurance protecting the lender (lender's
policy) or buyer (owner's policy) against
loss arising from disputes over ownership of
property.
Title Search
Examination of public records to ensure
that the seller is the legal owner of the
property and that no liens or other claims
are outstanding.
Transfer Tax
State or local tax payable when title
passes from one owner to another.
Truth-in-Lending Act
Federal law requiring lenders to fully
disclose, in writing, the terms and
conditions of a mortgage, including the APR
and other charges.
Underwriting
Process of evaluating a loan application
to determine the lender’s risk, it involves
analyzing the borrower's creditworthiness
and the quality of the property itself.
VA Loan
Loan guaranteed by the US Department of
Veterans Affairs - also known as a
government mortgage.
