Adjustable Rate Mortgage (ARM) - A mortgage with a fluctuating interest rate. ARMs tend to have lower initial interest rates for a set period of time, and then begin adjusting according to an index. They may adjust monthly, quarterly, annually or longer.
Addendum - A form describing a change or addition to the purchase agreement. Anything added in addendum should be looked at very carefully. Addendums are used for many changes, such as the extension of the closing date.
Appraisal - In a real estate transaction, the appraisal is a determination of the value of a house. The evaluation is required by the lender and prepared by the lender’s choice of an objective and impartial professional appraiser. The appraisal may not be the same amount as whatever selling price a real estate agent may have calculated. If the appraisal is lower, the buyer and seller have several options, including lowering the asking price.
Appraiser - A state-licensed person qualified by education, training, and experience to estimate the value of real property and personal property.
CC&Rs - Covenants, conditions and restrictions. This is where you find out that, no, you can’t paint your front door blue. These documents set out the rules that homeowners must obey.
Certificate of Eligibility - A document issues by the federal government certifying a veteran’s eligibility for a U.S. Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV) - A document issued by the U.S. Department of Veteran Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
Certificate of Title - The title certificate is a document that ensures the property being conveyed is legally owned by the seller(s) and that no other party owns any part of it or has any claims, such as liens, against it.
Chain of Title - The history of all the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Clear Title – A title that is free of liens or legal questions as to ownership of property.
Closing - This is where the term “closing table” comes into play, and the process is also known as “settlement.” You, your agent or attorney and the escrow agent, along with the seller and her agent or attorney, sit at a table and finalize the purchase. Sometimes a lender’s representative is present as well.
Closing Costs - All the additional expenses incurred in financing and purchasing the home. These expenses typically include attorney’s fees, a loan origination fee, escrow impounds, and other miscellaneous charges. Typically, closing costs run 6 percent of the sale price of the house.
Closing Statement – See HUD-1 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 a quitclaim deed, release, or court action.
CMA (Comparative Market Analysis) - A determination of a home’s market value for the purpose of determining a fair asking price. Real estate brokers compile the CMA by comparing the subject house to those that have recently sold within close proximity. Many times a buyer will request a CMA to ensure she is not overpaying for a house. Although the CMA is similar to an appraisal, it will not replace a lender-required appraisal.
Coinsurance – A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
Coinsurance Clause – A provision in a hazard insurance policy that states the amount of coverage must be maintained – as a percentage of the total value of the property – for the insured to collect the full amount of a loss.
Collateral – An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is no repaid according to the terms of the loan contract.
Collection – The efforts used to bring a delinquent mortgage amount current and to file the necessary notices to proceed with foreclosure when necessary.
Commission – The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.
Commitment Letter – A formal letter by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a loan commitment.
Common Area Assessments – Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners’ association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.
Common Areas – Those portions of the 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 cooperation) that are used by all of the units 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 building, parking areas, means in ingress and egress, etc.
Comparables – An abbreviation for comparable properties; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Condemnation – The determination that a building is not fit for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.
Condominium – A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
Construction Loan – A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Consumer Reporting Agency (or Bureau) – An organization the prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository, as well as from other sources.
Contingency - A section of the purchase agreement that specifies certain conditions that must be met in order for the sale to proceed. Common contingencies in purchase agreements include those for inspections and loan approval.
Contract – An oral or written agreement to do or not do a certain thing.
Conventional Mortgage – A mortgage that is not insured or guaranteed by the federal government.
Cooperative (Co-Op) – A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Cooperative Corporation – A business trust entity that holds title to a cooperative project and grants occupancy right to particular apartments or units to shareholders through proprietary leases or similar arrangements.
Cosigner – A person who signs a promissory note along with the borrower. A cosigner’s signature guarantees that the loan will be repaid, because the borrower and the cosigner are equally responsible for the repayment.
Counter Offer - A form that requests the addition or elimination of parts of the original purchase agreement.
Covenant – A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
Credit – An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit History – A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Life Insurance – A type of life insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor died while the policy is in force.
Creditor – A person to whom money is owed.
Credit Report – 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.
Credit Repository (Bureau) – 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.
Credit Score – A computer-determined number (score) that reflects an evaluation of positive and negative credit information about an individual. Many lenders use this number when determining whether to extend credit. The score is available from the credit bureaus, usually for a fee. Credit Scores are sometimes referred to as FICO scores after the Fair Isaacs Company that developed the credit scoring model.
Debt – An amount owed to another.
Deed - The deed is the legal document that provides proof of the transfer of ownership as real property.
Deed-In-Lieu – A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a voluntary conveyance.
Default – Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Delinquency – Failure to make mortgage payments when mortgage payments are due.
Deposit – A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of future funds in the processing of a loan.
Depreciation – A decline in the value of property; the opposite of appreciation.
Disclosures - Information about the home that a seller must provide, by law, to a buyer. The number and types of disclosures provided to the buyer depend on region. In California, for instance, the lengthy Transfer Disclosure Statement (TDS) provides the buyer with information from the seller regarding the condition of the property and any repairs or modifications performed.
Down Payment - The down payment is the percentage of the purchase price that the buyer pays in cash. Depending upon lender, this percentage generally ranges from 3 to 20 percent.
Due Diligence - The responsibility of the buyer to exercise the appropriate care before closing on the purchase. Due diligence includes verifying all of the seller’s representations and uncovering any other pertinent facts that have not been disclosed but have a bearing on whether or not you want to purchase the property.
Due-On-Sale Provision – 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 the mortgage.
Earnest Money Deposit - The earnest money deposit is money provided by the homebuyer to the seller to prove her earnest intent to purchase the property. The amount varies, and the check is typically submitted with the purchase agreement. If the sale goes through, the earnest money deposit is applied to the down payment. If the buyer walks away from the sale, through no fault of the seller, he may forfeit his earnest money deposit.
Easement – A right of way giving persons other than the owner access to or over a property.
Effective Age – 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 age.
Effective Gross Income – Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
Eminent Domain – The right of a government to take private property for public use upon repayment of its fair market value. Eminent domain is the basis for condemnation proceedings.
Employer-Assisted Housing – A housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.
Encroachment – An improvement that intrudes illegally on another’s property.
Encumbrance – Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit 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.
Equity – 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.
Escrow - The escrow process assures that the purchase funds are released and that the transfer of the house is completed. The escrow company is a neutral third party to the process and uses the purchase agreement and other associated documents as instructions.
Escrow Account – The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.
Escrow Collections – Funds collected by the servicers and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.
Escrow Disbursements – The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Impounds - The lender requires a deposit, as prepayment of taxes and insurance, at the close of escrow. This deposit goes into an escrow account and protects the lender in the event that you allow your insurance to lapse or don’t pay your property taxes. By law, the lender can only request an amount that is equal to no more than two months’ payments.
Escrow Payment – The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as impounds or reserves in some states.
Estate – 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.
Eviction / Ejectment – The lawful expulsion of an occupant from real property.
Exclusive Listing – A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.
Executor – 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 form.
Fair Credit Reporting Act – 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 report.
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 accept.
Federal Housing Administration (FHA) – 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.
FHA Loan - This is a loan tendered by a traditional lender but insured by the Department of Housing and Urban Development and administered by the Federal Housing Administration. FHA offers several home loan programs, some offering low down payments, others to assist buyers of fixer-upper properties. FHA does not provide loans — it provides insurance for loans.
FICO® Score - Your FICO® score is a compilation of information from the three major credit reporting agencies and calculated by the Fair Isaac Corporation. Your FICO® score reflects your debt payment history, amounts owed, length of credit history, new credit and the types of credit you use. The FICO® score range is between 300 and 850. The higher your FICO® score, the less of a credit risk you present to lenders.
Fiduciary Duty - The broker under which your real estate agent works is your fiduciary. She is held to specific duties, outlined by state law, to her principal (you). Some of these duties include disclosure, confidentiality, reasonable care and diligence and loyalty.
Final Walk-Through - The buyer is allowed one last chance to walk through the home prior to the close of escrow. This inspection is not to turn up newly-discovered defects, but to ensure that the home is in the same condition as when the offer was tendered.
Firm Commitment – A lender’s agreement to make a loan to a specific borrower on a specific property.
First Mortgage – A mortgage that is the primary lien against a property.
Fixed Installment – The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.
Fixed-Rate Mortgage - A type of mortgage in which the interest rate does not fluctuate over the life of the loan.
Fixture – Personal property that becomes real property when attached in a permanent manner to real estate.
Flood Insurance – Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure – 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.
Forfeiture – The loss of money, property, rights, or privileges due to a breach of legal obligation.
Government Mortgage – A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the U.S. Department of Veteran Affairs (VA) or the USDA Rural Development Service. Also known as an FHA mortgage or a VA mortgage.
Guarantee Mortgage – A mortgage that is guaranteed by a third party.
Guaranteed Loan – Also known as a government mortgage.
GFE - The Good Faith Estimate is a form provided to borrowers by lenders. It is required by law and allows borrowers to compare the rates and terms of multiple lenders when shopping for a home loan. The GFE must include a list of all fees associated with the mortgage loan and it must be provided to the borrower within three days of loan application.
Hazard Insurance – Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
Home Equity Line of Credit – A mortgage loan, usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or own discretion, up to an amount that represents a specified percentage of the borrower’s equity in a property.
Home Inspection – A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
Homeowners’ Association – A nonprofit 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.
HOA Docs - Homeowner’s Association Documents. When purchasing a condo or a home in a managed community, you have a right to view recent HOA meeting minutes, a copy of their current budget, CC&Rs and other equally fascinating documents. Think boring, and you’ve got an idea of what’s included in the HOA docs. They’re important, though, so set aside an hour or two to go over them.
Homeowner’s Insurance – An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
Homeowner’s Warranty (HOW) – A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
Housing Expense Ratio – The percentage of gross monthly income that goes toward paying housing expenses.
HUD Median Income – Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the U.S. Department of Housing and Urban Development (HUD).
HUD 1 – A document that provides an itemized listing of the funds that are payable at closing. Items that appear on statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 Statement define the seller’s net proceeds and the buyer’s net payment at closing. The blank form from the statement is published by the U.S. Department of Housing and Urban Development (HUD). The HUD-1 Statement is also known as the closing statement or settlement sheet. See also Real Estate Settlement Procedures Act (RESPA).
Income Property – Real estate developed or improved to produce income.
Index – A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.
In-File Credit Report – An objective account, normally computer generated, of credit and legal information from a credit repository.
Inflation – An increase in the amount of money or credit available in relation to the amount of goods or services available, which caused an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.
Initial Interest Rate – The original rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes knows as start rate or teaser.
Installment – The regular periodic payment that a borrower agrees to make to a lender.
Installment Loan – Borrowed money that is repaid in equal payments, knows as installments. A car loan often paid for as an installment loan.
Insurable Title – A property title that a title insurance company agrees to insure against defects and disputes.
Insurance – A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is knows as an insurance policy, and the periodic payment is known as an insurance premium.
Insurance Binder – A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
Insured Mortgage – A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.
Interest – The fee charged for borrowing money.
Interest Only Mortgage – A mortgage loan that stipulates that only the monthly interest portion of the loan will be paid until a future date, usually in one, three, or five years. Borrowers must be aware that when the full payment of principal and interest start the monthly payment will be substantially higher.
Interest Rate – The rate of interest in effect for the month payment due.
Interest Rate Buydown Plan – An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage. During the specified period, the mortgagor’s effective interest rate is “brought down” below the actual interest rate.
Joint Tenancy - A form of co-ownership that gives each tenant equal interest and equal rights in the property, including right of survivorship.
Judgment – A decision made by a court of law. For judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.
Judgment Lien – A lien on the property of a debtor resulting from the decree of a court.
Late Charge – The penalty a borrower must pay when a payment is made a stated number of days late (usually 15) after the due date.
Lease Purchase Mortgage – A contractual agreement between a tenant and an owner where the owner agrees to credit a portion of the monthly rent toward a downpayment and convey title to the property of the tenant after a specified period of time for an agreed-upon sale price.
Legal Description – A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
Liabilities – A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
Liability Insurance – Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.
Lien – A legal claim against a property that must be paid off when property is sold.
Line of Credit – An agreement by a commercial bank or other financial institution to extent credit up to a certain amount for a certain time to a specified borrower.
Liquid Asset – A cash asset that is easily converted into cash.
Loan – A sum of borrowed money (principal) that is generally repaid with interest.
Loan Commitment – See Commitment Letter.
Loan Origination – The process by which a mortgage lender bring into existence a mortgage secured by a real property.
Loan-To-Value (LTV) Ratio - The LTV is a ratio that lenders use to assess risk when providing a mortgage loan. The LTV represents the amount of the mortgage divided by the appraised value of the property. Lenders consider higher LTV ratios as high risk loans.
Lock-In – A written agreement in which the lender guarantees a specified interest rate if a mortgage goes in closing within a set period of time. The lock-in also usually specifies the number of points to be paid at the closing.
Lock-In Period – The time period which the lender has guaranteed an interest rate to a borrower.
Margin – For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.
Master Association – A homeowners’ association in a large condominium or planned unit development (PUD) project that is made up of representative from associations covering specific areas within the project. In effect, it is a “second-level” association that handles matters affecting the entire development, while the “first-level” associations handle matters affecting their particular portions of the project.
Maturity – The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
Merged Credit Report – A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of your credit.
Modification – The act of changing any terms of the mortgage.
Monthly Fixed Installments – That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortized, the monthly fixed installment does not include any amount for principal reduction.
Monthly Payment Mortgage – A mortgage that requires payments to reduce the debt once a month.
Mortgage - A legal document that pledges the house to the lender as security for the loan to purchase the house.
Mortgagee – The lender in a mortgage agreement.
Mortgagor – The borrower in a mortgage agreement.
Mortgage Bank – A company that originates mortgages usually for resale in the secondary market.
Mortgage Broker – An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or commission for their services.
Mortgage Insurance – A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issues by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan. See Private Mortgage Insurance (PMI).
Mortgage Insurance Premium – The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company.
Mortgage Life Insurance – A type of term life insurance often brought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is still forced, the debt is automatically satisfied by insurance proceeds.
Multifamily Mortgage – A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.
Negative Amortization – A 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 to create “negative” amortization.
Net Worth – The value of all of a person’s assets, including cash, minus all liabilities.
No Cash-Out Refinance – A refinance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing first mortgage, closing costs (including prepaid items) points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them), and other funds for the borrower’s use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).
Nonliquid Asset – As asset that cannot easily be converted into cash.
Note – A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate – The interest rate stated on a mortgage note.
Notice of Default – A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Offer - A presentation of a bid on a home for sale.
Original Principal Balance – The total amount of principal owed on a mortgage before any payments are made.
Origination Fee – A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is one percent of the mortgage amount.
Owner Financing – A property purchase transaction in which the property seller provides all or part of the financing.
Partial Payment – A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.
Payment Change Date – The date when a new monthly payment taken effect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GRARM). Generally, the payment change date occurs in the month immediately after the adjustment date.
Personal Property – Any property that is no real property.
PITI (Principal, Interest, Taxes and Insurance) - Your monthly mortgage payment. Principal is the part of the payment that pays down the loan, the interest is the part of the payment that pays the lender for loaning you the money to buy the home, taxes and insurance are the necessary evils that must be paid for, typically into an escrow account each month.
Planned Unit Development (PUD) – 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.
PMI (Private Mortgage Insurance) - Like mortgage insurance, this policy protects the lender against a buyer’s loan default. Lenders on high-risk loans – typically when the LTV exceeds 80 percent – require PMI. When the homeowner’s LTV falls below the specified rate, PMI may be discontinued.
Point - A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the loan.
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.
Prearranged Refinancing Agreement – A formal or informal agreement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.
Preforeclosure Sale – A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.
Pre-Payment – 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 mean payment occurs before the loan has been fully amortized.
Pre-Qualification - The process of determining if a borrower qualifies for a loan and the approximate amount of money she may qualify to receive.
Prime Rate – The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
Principal – The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
Principal Balance – The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.
Promissory Note – A written promise to repay a specified amount over a specified period of time.
Public Auction – A meeting in an announce public location to sell property to repay a mortgage that is in default.
Purchase and Sale Agreement – A written contact signed by the buyer and seller stating the terms and conditions under which the property will be sold.
Purchase Money Transaction – The acquisition of property through the payment of money or its equivalent.
Qualifying Ratios – Calculations that are used in determining whether a borrower can qualify for a mortgage. They usually consist of two separate rate calculations; a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
Quitclaim Deed – A deed that transfers without warranty whatever interest or title a grantor may have at the time conveyance is made.
Title Insurance - An insurance policy that protects against damages due to defects in the chain of title.
Rate Lock – A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specific interest rate for a specified period of time. See Lock-In.
Real Estate Agent – A person licensed to negotiate and transact the sale of real estate on behalf of the property owner or home buyer.
Real Estate Settlement Procedures Act (RESPA) – A consumer protection law that requires lenders to give borrowers advance notice of closing costs. See also HUD-1 Statement.
Real Property – Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
Realtor® - A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
Recorder – The County Clerk who keeps records of transactions that affect real property in the county of purchase, including deeds and mortgages.
Recording – 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 record.
Rehabilitation Mortgage – A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.
Remaining Balance – The amount of principal that has not yet been repaid.
Remaining Term – The original amortization term minus the number of payments that have been applied.
Repayment Plan – An arrangement made to repay delinquent installments or advances. Lenders’ formal repayment plans are called relief provisions.
Right 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.
Right of Survivorship – In joint tenancy, the right of survivors to acquire the interest of a decreased joint tenant.
Second Mortgage – A mortgage that has a lien position subordinate to the first mortgage.
Secondary Mortgage Market – The buying and selling of existing mortgages.
Secured Loan – A loan that is backed by collateral.
Security – The property that will be pledged as collateral for a loan.
Servicer – 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 market.
Servicing – The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Settlement – See closing.
Settlement Sheet – See HUD-1 Statement.
Special Deposit Account – An account that is established for rehabilitation mortgages to hold the funds needed for the rehabilitation work so they can be disbursed from time to time as particular portions of the work are completed.
Standard Payment Calculation – The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining terms of the mortgage at the current interest rate.
Subdivision – A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Subordinate Financing – Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
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.
Sweat Equity – Contribution to the construction or rehabilitation of a property in the form or labor or services rather than cash.
Tenancy by the Entirety – A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife.
Tenancy In Common – A type of joint tenancy in a property without right of survivorship. Contrasts with tenancy by the entirely and joint tenancy.
Title – A legal document evidencing a person’s right to or ownership of a property.
Title Company – A company that specializes in examining and insuring title to real estate.
Title Insurance – Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
Title Search – 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 the other claims outstanding.
Total Expense Ratio – Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.
Transfer Tax – State tax payable when title passes from one owner to another.
Truth-in-Lending – 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.
Trustee – A fiduciary who holds or controls property for the benefit of another.
Underwriting – The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
Unsecured Loan – A loan that is not backed by collateral.
U.S. Department of Veterans Affairs - 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 to veterans.
VA Loans - These loans are offered by the Department of Veterans Affairs exclusively to members of the military. Veterans, those on active-duty and reservists are all considered as eligible to apply for VA loans, which typically require no down payment.
Vested – 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.