| Adjustable Rate Mortgage (ARM) | A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages). |
| Adjustment | The amount added to or subtracted from the sales price of comparable properties to obtain an adjusted sales price that more accurately reflects the subject property's value. |
| Adjustment Period | The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year. |
| Amortization | The systematic and continuous repayment of an obligation through periodic installments until the debt has been paid off in full. |
| Amortization Period | That period of time over which a calculated mortgage payment will fully repay a set loan amount at a set interest rate. |
| Annual Percentage Rate (APR) | The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount. |
| Application | A form used by a borrower to submit pertinent financial and property information concerning a borrower/mortgagor and the proposed security. |
| Appraisal | A report made by a qualified appraiser setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained. |
| Assumption of Mortgage | A buyer's agreement to assume the liability under an existing note that is se-cured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original bor-rower (usually the s~er) from liability. |
| Balloon Mortgage | A mortgage with periodic installments of principal and interest that, at the end of such a period, do not fully amortize the loan. The balance of the mortgage due is usually paid in a lump sum at a specified date, usually at the end of the term of such periodic installments. |
| Balloon Payment | A lump sum principal payment due at the end of some mortgages or other long-term loans. |
| Basis Point | 1/100 of 1% (0.01%). |
| Binder | Sometimes Imown as an offer to purchase or an earnest money receipt. A binder is the acimowledge-ment of a deposit along with a brief written agreement to enter into a contract for the sale of real estate. |
| Broker (Real Estate) | One who receives a commission or fee for bringing buyers and sellers together and assists in the negotiation of real estate sales contracts between them. In most states, a license to do so is required. |
| Builder | One who assembles materials in order to fabricate, erect or construct a building; or one who oversees building operations. |
| Buydown | A sum of money paid to the lender at closing to reduce the borrower's out-of-pocket monthly payment. A boydown can be temporary or permanent. |
| CC&R's | Covenants, conditions and restrictions. A document that controls the use, requirements and restrictions of a property. |
| CRB | Certified Residential Broker. To be certified, a broker must be a member of the National Association of Realtors¨, have five years experience as a licensed broker and have completed required Residential Division courses. |
| CRS | Certified Residential Specialist. |
| Cap | The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage. |
| Certificate of Reasonable Value (CRV) | A docu-ment that establishes the maximum value and loan amount for a VA guaranteed mortgage. |
| Closing (Loan Closing) | The process that brings a loan into legal existence, including the signing of all loan documents, their delivery to the appropriate parties, and the disbursing of at least some of the loan funds. |
| Closing Costs | Costs, in addition to the price of the property itself, that are due at closing. These costs normally include, but are not limited to, origination fees, discount points (see Points), attorney's fees, costs for title insurance, surveys, recording documents, and prepayments of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs. |
| Closing Statement | The financial disclosure state-ment that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance. |
| Co-Borrower | A party who signs the mortgage note along with the borrower and who shares the title to, and the obligation to pay for the property with the borrower. Also called ~ |
| Collateral | Property pledged as security for a debt. For example, real estate securing a mortgage. Collateral can be repossessed if the loan is not repaid. |
| Commitment | An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions. (See Conditional, Firm, Standby and Tak~Out Commitment.) |
| Conditional Sales Contrad | A contract for the sale of a property in which transfer of title to the buyer is contingent on fulfillment of certain conditionsi contingencies. |
| Condominium | A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certairi common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries. |
| Contingency | A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtalling financing. |
| Conventional Loan | A mortgage loan not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) or Farmers Home Administration (FmHA). No governmental agency approval is required of the lender borrower or property. It is called uconventionalN because it conforms to accepted standards, modified within legal bounds by mutual consent of the borrower and the lender. Also called '~conventional residential mortgage." |
| Conversion Clause | A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages. This conversion feature may cost extra. |
| Cooperative | A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements. |
| Credit Report | A document completed by a credit-reporting agency providing information about the buyer's credit cards, previous mortgage history~ bank loans and public records dealing with financial mailers. |
| Debt | A sum of money due by certain and express agreement. |
| Deed | The formal written document that transfers the rights of ownership and possession (that is, the title) from the seller to the buyer. |
| Delinquent | A loan payment that has not been received 30 days after its due date. |
| Deposit | With reference to the sale of real estate, a sum of money given to either bind a sale of real estate or assure payment or an advance of funds in the processing of a loan. Also known as "earnest money." |
| Down Payment | The difference between the sales price of real estate and the amount of the mortgage loan. |
| Due-On-Sale Clause | A clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership. |
| Earnest Money | The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith. |
| Endorsement | 1) The signature on the back of a check, note or other negotiable instrument. 2) An addition made to a document, such as a title policy, in order to alter or clarify it. |
| Equal Credit Opportunity Ad (ECOA) | Federal legislation that prohibits a creditor from discriminating in mortgage lending on the basis of race, color, religion, national origin, sex, marital status, age, income derived from public assistance programs, or previous exercise of Consumer Credit Protection Act rights. |
| Equity | The owner's interest, or the amount of cash the owner has, realized, paid in or invested in real estate. |
| Escrow Account | An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance and special assessments, and from which the lender disburses these sums as they become due. |
| Escrow | A procedure in which a third party acts as a stakehoTder for both the buyer and the seller, carrying out both parties' instructions and assuming responsibility for handling all of the paperwork and distribution of funds. |
| FHA | See Federal Housing Administration. |
| FHA Ioan | A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development). |
| FHLMC | See Federal Home Loan Mortgage Corporation. |
| FIAR | See Fully Indexed Accrual Rate. |
| FNMA | See Federal National Mortgage Association. |
| Fannie Mae | See Federal National Mortgage Association. |
| Federal Home Loan Mortgage Corporation | A secondary market facility of the Federal Home Loan Bank System that is authorized to buy and sell conventional home loans and participating interests in blocks of conventional loans. |
| Federal Housing Administration | A federal agency within the U.S. Department of Housing and Urban Development (HUD). Using loan insurance programs to insure mortgages for lenders, the Federal Housing Administration (FHA) stimulates the availability of housing for low- and moderate-income families. |
| Federal National Mortgage Association (FNMA) | Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages. |
| Fee Simple | An estate in which the owner has unre-stricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate. |
| Finance Charge | The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z~ |
| Fixed Interest Rate | A mortgage feature that structures the loan so that there will be no increases or decreases in the interest rate during the life of the loan. |
| Fixed Monthly Payment | A feature in a loan that prevents increases or decreases in the monthly payment amount during the life of the loan. |
| Fixed-Rate Mortgage | The type of loan in which the interest rate will not change for the entire term of the loan. |
| Foreclosure | An action to eliminate the interest of a borrower in real estate so as to give the lender good title. |
| Freddie Mac | See Federal Home Loan Mortgage Corporation. |
| GRI | Graduate, Realtors Institute. A professional designation granted to a member of the National Association of Realtors who has successfully completed courses covering law, Finance and Principles of Real Estate. |
| Gift Leffer | A leller or affidavit that indicates that part of a borrower's down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid. |
| Good Faith Estimate | Provides a breakdown of the estimated closing charges. |
| Graduated Payment Mortgage | A residential mortgage with monthly payments that start at a low level and increase at a predeterrrined rate |
| Hazard Insurance | A broad form of casualty insurance coverage for real estate that includes protection against loss from fire, certain natural causes, vandalism and malicious mischief. |
| Home Inspection Report | A qualified inspector's report on a property's overall condition. The report usually includes an evaluation of both the structure and mechanical systems. |
| Home Warranty Plan | Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances. |
| Homeowner's Package | A broad form of insurance coverage for real estate that combines hazard insurance with personal protection and other items. Also known as a Homeowner's Policy. |
| Index | A measure of interest rate changes used to determine changes in an ARM's interest rate over the term of the loan. |
| Initial Interest Rate | The beginning interest rate at the start of an adjustable-rate mortgage (ARM). It may be lower than the fully indexed rate or 'going market rate" and it will remain constant until it is adjusted up or down on the adjustment date. |
| Interest | 1) A charge for borrowing money. It is usually expressed on an annual rate, or as a percentage, of the money still owed. For example, the interest rate might be 10%. If a person borrowed $10,000 and agrees to pay it in full at the end of one year, the interest will be $1,000.2) A right, share or title in property. 3) A general term meaning partial or total right to a property. An interest in real estate might be a right, such as an easement (see Easement), a lease or partial or full ownership. |
| Interest Rate | The percentage of an amount of money which is paid for its use for a specified time; usually expressed as an annual percentage. |
| Joint Tenancy | An equal undivided ownership of property by two or more persons. Upon the death of any owner; the survivors take the decedent's interest in the property. |
| LTV | See Loan to Value and Loan-t~Value Ratio. |
| Late Charge | An additional charge a borrower is required to pay as a penalty for failure to pay a regular mortgage loan installment when due; a penalty for a delinquent payment. |
| Lien | A legal encumbrance or claim of one person on the property of another as security for a debt or charge. |
| Liquidity | The amount an individual or entity holds in cash, checking and savings accounts and other assets quickly convertible to cash without any significant loss. |
| Loan | The letting out or renting of money by a lender to a borrower to be repaid with or without interest. |
| Loan Closing | A meeting between borrower and lender in which transfer of ownership is accomplished, funds and deed are exchanged, and all loan documents, including the promissory note and mortgage, are signed. |
| Loan Commitment | A written promise to make a loan for a specified amount on specified terms. |
| Loan to Value | Mathematical computation that compares the loan amount to the value of the property. |
| Loan-To-Value Ratio | The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value. |
| Margin | The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment. |
| Market Value | An estimate of the highest price a property would sell for within a reasonable period of time, on the open market under normal conditions, and between a willing, ready and able buyer and seller. |
| Mortgage Banker | An entity or individual active in the field of mortgage banking. Mortgage bankers, as local representatives of regional or national institutional lenders, act as correspondents between lenders and borrowers. |
| Mortgage Broker | An individual or firm that acts as an agent for both the borrower and the lender of a mortgage loan. The broker places the borrower and lender in contact with each other and receives a commission from the borrower if a loan results. Unlike a mortgage banker a mortgage broker does not negotiate the terms of the loan, issue a loan commitment, prepare the loan documents or service the loan. |
| Mortgage Guaranty Insurance Premium | The amount paid by a mortgagor for mortgage guaranty insurance either to the FHA or a private mortgage guaranty insurance company. |
| Mortgage Life Insurance | A type of term life insurance often bought by home buyers . The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the mortgage debt is automatically covered by insurance proceeds. |
| Mortgagee | The institution, group or individual that lends money on the security of pledged real estate; the association, the lender. |
| Negative Amortization | Negative amortization occurs when monthly payments fail to cover the in-terest cost. The interest that isn't covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren't high enough to cover the interest. |
| Note | A wrillen promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually. Also called "promissory note." |
| Note Rate | The interest rate on the mortgage loan. |
| Offer to Purchase | A document completed by a home buyer specifying the terms and conditions under which real estate will be purchased. |
| Origination Fee | A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to 1 percent for FHA and VA loans. |
| PITI Ratio | Compares the amount of the monthly income to the amount the borrower will owe each month in principal, interest, real estate tax and insurance on a mortgage. It is used by lenders in deciding whether to give the borrower a loan. (Compare to Qualifying Income Ratio.) Also called "income-to~debt" ratio. |
| PITI | Principal, Interest, Taxes and Insurance. |
| Payment Shock | Occurs when the terms of a mortgage instrument require an increased payment and the borrower is unable to make or keep up with the increased payment obligation. |
| Planned Unit Development (PUD) | A zoning designation for property developed at the same or slightly greater overall density than conventional de-velopment, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial. |
| Point | An amount equal to 1 percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments. |
| Points | An amount equal to one percent of the principal amount of a note. Loan discount points are a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments. |
| Prepayment Penalty | A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA or VA loans. |
| Principal Balance | The outstanding balance of a mortgage, exclusive of interest and any other charges. The capital sum of a loan. |
| Principal Interest Real Estate Tax Insurance | The total mortgage payment which includes principal, interest, taxes and insurance. |
| Private Mortgage Insurance (PMI) | Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage. |
| Purchase Agreement | A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale. |
| Qualifying Income Ratio | Income analysis used by lenders in deciding whether to offer the borrower a loan. One type of analysis compares only the amount of the proposed monthly mortgage payment to the monthly income. (See PITI Ratio.) Another compares the amount of the total monthly payments (for example, car, credit card and proposed mortgage payments) to the monthly income. |
| Realtor¨ | A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors¨. |
| Regulation Z | The set of rules governing consumer lending issued by the Federal Reserve Board of Gover-nors in accordance with the Consumer Protection Act. |
| Sales Contract | A wrillen agreement between competent parties stating all terms and conditions of a sale. |
| Secondary Market | An informal market where existing mortgages are bought and sold. It is the traditional aftermarket for mortgage loans that brings together lenders that sell mortgages with lenders, investors and agencies that buy mortgages. Also called "secondary mortgage market," it should not be confused with a second mortgage. |
| Settlement Statement | The complete breakdown of costs involved in the real estate transaction for both the seller and buyer. |
| Survey | A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimensions of any improvements. |
| TIL | See Truth-in-Lending Act. |
| Tax Lien | A lien on a property by local, state or federal government for the amount of due and unpaid taxes. |
| Tenancy in Common | A type of joint ownership of property by two or more persons with no right of survivorship. |
| Title Insurance Policy | A contract by which the insurer, usually a title insurance company, indicates who has legal title and agrees to pay the insured a specific amount of any loss caused by clouds, claims or defects of title to real estate, where the insured has an interest as owner, mortgagee or otherwise. |
| Total Principal Balance | The sum of the outstanding principal balances of the loans in the package. |
| Truth-in-Lending Ad | Federal legislation that provides borrowers with specific information on the cost of obtaining credit. |
| Underwriting | In mortgage lending, the process of approving or denying a loan based on an evaluation of the property and the applicant's creditworthiness and ability to repay the loan. The underwriter analyzes the risks involved and selects an appropriate loan term and interest rate. |
| VA Loans | A loan, made by a private lender, that is partially guaranteed by the Veterans Administration. |
| VOD | See Verification of Deposit. |
| VOE | See Verification of Employment. |
| Verification of Deposit | A form sent to each depository listed on the loan application to verify the funds of the borrower at such institution. |
| Verification of Employment | A form sent to the borrower's employer to verify the borrower's employment and employment history. |
| Yield | The effective rate or return on an investment based upon the fees, the rate of interest and the price paid for the mortgage. |
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