A

Acceleration clause

A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance. For example, if a monthly payment is missed or the mortgage contains a due on sale provision.

Additional principal payment

A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the mortgage loan.

Adjustable-rate mortgage (ARM)

A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified financial index.

Adjustment date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment period

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Amortization table

An amortization table shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Annual percentage rate (APR)

The actual finance charge for a loan, including points and loan fees in addition to the stated interest rate. This is figured over the life of the loan. It is often used to help determine the actual costs of obtaining financing.

Application (1003)

A form used to apply for a mortgage loan.

Appraisal

A written analysis of the estimated value of a property based on comparable homes.

Assessment

Value assigned to property by local government for tax purposes. This is not used to determine the fair market value.

Asset

Anything of monetary value that is owned by an applicant. Assets include but are not limited to bank accounts, stocks, mutual funds, real property and personal property.

Assignment

The transfer of a mortgage from one party to another.

Assumable mortgage

A mortgage that can be taken over by the buyer when a home is sold.

Assumption clause

A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property. Usually, the lender reserves the right to approve the buyer.

B

Balance sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon mortgage

A mortgage that has periodic payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Bankrupt

A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Beneficiary

The person designated to receive the income from a trust, estate, or a deed of trust.

Bequeath

To transfer personal property through a will.

Bill of sale

An amortization table shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Bi-weekly payment mortgage

A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.

Bona fide

In good faith, without fraud.

Bond

An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Borrower

A mortgagor whom receives funds in the form of a loan with the obligation.

Breach

A violation of any legal obligation.

Bridge loan

A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan." This additional payment may be taken into consideration in qualifying for the new purchase.

Broker

A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Budget

A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Building code

Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Buydown mortgage

A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

C

Cap
Limit on how much the interest rate or mortgage payment may change on an ARM. ARMs typically have a yearly adjustment cap and a lifetime adjustment cap.

Capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cash-out refinance
A refinance transaction in which the borrower receives cash in excess of existing mortgages and certain financing costs.

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chain of title
The history of all of 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 the property.

Closing
The final procedure in which documents are executed and/or recorded.

Closing costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey.

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.

Collateral
An asset that secures the repayment of a loan.

Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are jointly responsible for the repayment.

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction.

Commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a borrower.

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 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, etc.

Common law
An unwritten body of law based on general custom and usage which is recognized and enforced by the courts.

Comparable (COMP)
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.

Compound interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

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.

Condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

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.

Contingency
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.

Contract
An oral or written agreement to do or not to do a certain thing.

Conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.

Convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Cooperative (co-op)
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)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

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 reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from credit repositories (EFX, Experian, TU), as well as from other sources.

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 insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Creditor
A person or entity 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. See merged credit report.

Credit repository
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.

D

Deed
The legal document conveying title to a property from the seller to the buyer.

Deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."

Deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

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.

Down payment
The difference between the purchase price and the mortgage amount of a property when the property is first purchased.

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.

E

Earnest money deposit

A good faith deposit to show seriousness of purchase.

Easement
A right of way giving persons other than the owner access to or over a property.

Eminent domain

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 proceedings.

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
The value of your home after any mortgage loans are subtracted.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition.

Escrow account
The account in which a mortgage servicer holds the borrowers' escrow payments prior to paying property expenses.

Escrow analysis
Funds collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance.

Escrow collections
A violation of any legal obligation.

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 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
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.

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.

F

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 record.

Fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest price a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA)
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Federal Home Loan Mortgage Corporation (FHLMC)
A corporation established to purchase primarily conventional mortgage loans in the secondary market. Also known as Freddie Mac.

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.

Fee simple
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 property.

FHA coinsured mortgage
A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor's default.

FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

Finder´s fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

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 (FRM)
A mortgage in which the interest rate does not change during the entire term 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.

401(k)
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.

401(k) loan
Some administrators of 401(k) plans allow for loans against the monies you have accumulated in these plans.

G

Government National Mortgage Association
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

Grantee
The person to whom an interest in real property is conveyed.

Grantor
The person conveying an interest in real property.

Gross income multiplier
A figure used as a mutiplier of an income producing property's gross annual income to estimate its value.

Growing-equity mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

H

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, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her 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.

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-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the 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. This statement is often referred to as the Settlement Statement.

I

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 obtained from a credit repository.

Initial interest rate (Start Rate)
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM).

Installment
The regular periodic payment that a borrower agrees to make to a lender.

Installment loan
Borrowed money that is repaid in equal payments, known as installments. A furniture loan is 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 known 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 (MI). 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 sum paid to a lender for money borrowed.

Interest rate
The rate of interest in effect for the monthly 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 "bought down" below the actual interest rate.

Interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Investment property
A property that is not occupied by the owner.

IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

J

Joint tenancy
A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Judgment
A decision made by a court of law. In 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.

K

L

Late charge

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Lease
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

Leasehold estate
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it

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 the property is sold.

Lifetime payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lifetime rate cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan.

Line of credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid asset
A cash asset or an asset that is easily converted into cash.

Loan
A sum of borrowed money (principal) that is generally repaid with interest.

Loan origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.

Loan servicing
All the steps taken to maintain a secure position of the lender from the time loan is originated until the last payment is made. The process includes recording payments, analyzing escrow, preparing statements and handling collections.

Loan-to-value (LTV) percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV of 80 percent.

Lock-in
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Lock-in period
The time period during which the lender has guaranteed an interest rate to a borrower.

M

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.

Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Maximum financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

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 a your credit.

Modification
The act of changing any of the terms of the mortgage.

Money market account
A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Money market fund
A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

Monthly fixed installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, 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 a property to the lender as security for payment of a debt.

Mortgage banker
A company that originates mortgages exclusively for resale in the secondary mortgage market

Mortgage broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination

Mortgagee
The lender in a mortgage agreement.

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 issued 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.

Mortgage insurance premium (MIP)
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 (MI) company.

Mortgage life insurance
A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgagor
The borrower in a mortgage agreement.

Multidwelling units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multifamily mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

Multiple listing service
A marketing organization composed of real estate brokers who agree to share their listing agreements.

N

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 cash flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.

Net worth
The value of all of a person's assets, including cash, minus all liabilities.

Nonliquid asset
An asset that cannot easily be converted into cash.

Notary public
A public officer auhorized to attest the signing of documents requiring certification.

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.

O

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. Usually computed as a percentage of the mortgage. For example, a mortgage of $100,000 with a 1 point origination fee is equal to $1,000 (1 percent of the mortgage amount).

Owner financing
A property purchase transaction in which the property seller provides all or part of the financing.

P

Payment change date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage.

Payoff
The complete repayment of loan principal, interest and other amounts due.

Periodic payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic rate cap
For an adjustable-rate mortgage (ARM), 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.

PITI
A mortgage payment including principal, interest, taxes and insurance.

Point
A one-time charge by the lender for originating a loan. 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.

Prepayment penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

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. See remaining balance.

Principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment. 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 (PMI or MI)
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.

Promissory note
A written promise to repay a specified amount over a specified period of time.

PUD (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.

Purchase and sale agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Q

Qualifying ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate 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 relinquishes all interest, title, or claim in a property by a grantor, but not representing that such title is valid nor containing any warranty or covenants of title.

R

Rate and term 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).

Rate-improvement mortgage
A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.

Rate lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time.

Real estate agent
A person licensed to negotiate and transact the sale of real estate on behalf of a property owner or purchaser.

Real estate settlement procedures act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real property
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

Rescission
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

Recorder
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

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.

Refinance transaction
The process of paying off one loan with the proceeds from a new loan using the same property as security.

Release
The discharge of property from a mortgage loan.

Remaining balance
The amount of principal that has not yet been repaid. See principal balance.

Remaining term
The original amortization term minus the number of payments that have been applied.

Rent loss insurance
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.

Repayment plan
An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions."

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.

Revolving liability
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

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 ingress or egress
The right to enter or leave designated premises.

Right of survivorship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Risk score
A mathematical formula that predicts future credit performance.

S

Second mortgage
A mortgage that has a lien position subordinate to the first mortgage.

Secondary market
A market that buys and sells mortgages after origination. Mortgages may be pooled in form of securities such as GNMA, FNMA or FHLMC, tha are traded on established national markets.

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.

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 of labor or services rather than cash.

Swing loan
See bridge loan.

T

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.

Tenant-stockholder
The obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement.

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 titles 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 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 of ownership
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. In cases in which an inter vivos revocable trust is the borrower, lenders also consider any transfer of a beneficial interest in the trust to be a transfer of ownership.

Transfer tax
State or local tax payable when title passes from one owner to another.

Treasury index
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.

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.

Two-step mortgage
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.

Two- 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.

Trustee
A fiduciary who holds or controls property for the benefit of another.

U

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.

Usury
Taking or contracting for a rate of interest greater than permitted by law.

V

VA mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

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.

VA 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.

Volatility
A measure of asset risk.

W

Waiver of lien
The written evidence from a contractor (or supplier of material) surrending the right of lien to enforce collection of debt against real property.

Wrap-around mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.

X

Y

Yield
The rate of return paid on an investment.

Z

Zoning restrictions
Restrictions imposed by a governing authority for the use of property.