Glossary of Terms
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Acceleration Clause - Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.
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.
Bankruptcy - A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
Closing - The occasion where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called "settlement."
Closing Costs - Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."
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 not repaid according to the terms of the loan contract.
Collection - The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
Comparables - An abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to property under consideration, thereby indicating the approximate fair market value of the subject property.
Conventional Mortgage - Any mortgage that is not insured or guaranteed by the federal government.
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.
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 - 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.
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 conditions of a mortgage.
Deficiency Judgment - A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states.
Delinquency - A loan in which a payment is overdue but not yet in default.
Department of Veterans Affairs (VA) - 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.
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.
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 difference between the market value of a property and the homeowner's outstanding mortgage balance.
Eviction - The lawful expulsion of an occupant from real property.
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 a seller, willing but not compelled to sell, would accept.
FDIC - (Federal Deposit Insurance Corporation). Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation. (FSLIC).
FHA - (Federal Housing Administration). A division of the Department of Housing and Urban Development. The FHA's main activity is the insuring of residential mortgage loans made by private lenders. It sets standards for construction and underwriting. FHA neither lends money, nor plans, nor constructs housing.
FHA Loan - Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
FHLBB - (Federal Home Loan Bank Board). A regulatory and supervisory agency for federally charted savings institutions, which oversees the operations of the FSLIC and FHLMC. This agency was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. (See FIRREA.)
FHLMC - (Federal Home Loan Mortgage Corporation, Freddie Mac). A private corporation authorized by Congress, which became an independent, stockholder-owned government corporation with the passage of FIRREA. FHLMC promotes the flow of funds into the housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market.
Finance Charge - The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.
FIRRA - (Financial Institutions Reform, Recovery and Enforcement Act of 1989). An act signed into law in August 1989, by President Bush that restructured the thrift regulatory an insurance system.
First Mortgage - The mortgage that has first claim in the event of default.
Fixed installment - The monthly payment due on a mortgage loan.
Fixed-Rate Mortgage - (FRM) A mortgage in which the interest rate does not change during the entire term of the loan.
FNMA - (Federal National Mortgage Association, Fannie Mae). A government-sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA and VA mortgages and conventional mortgages.
Forfeiture - The loss of money, property, rights, or privileges due to a breach of legal obligation.
Foreclosure - The process by which a mortgage property may be sold when a mortgage is in default.
Fully amortized ARM - An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
Full Recasting - Setting the P&I payments to the level that will fully amortize the loan's outstanding balance over the remaining term using the fully indexed accrual rate at the recasting point.
Fully Indexed Accrual Rate - The interest (accrual) rate resulting from the index at closing (or at another point in the loan) plus the lender's full spread, rounded as prescribed in the loan documents (often to the nearest 1/8th of 1%).
Good Faith Estimate - An estimate of charges, which a borrower is likely to incur in connection with a loan closing.
Government Loans FHA / VA - Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
Graduated Payment Mortgage - (GPM) A mortgage where the payments are scheduled to increase, usually annually, for a set number of years, and then level off. GPM can be used with either a fixed or adjustable interest rate, and usually has a 30-year term.
Grantee - That party in the deed who is the buyer or recipient.
Grantor - That party in the deed who is the seller or giver.
Gross Monthly Income - The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.
Housing Ratio - The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.
HUD - (Department of Housing and Urban Development). A cabinet department responsible for the implementation and administration of government housing and urban development programs.
Index - (Also called "Rate Index"). A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set AML accrual rates.
Initial Borrower Interest Rate - The rate on which the borrower's first payment is calculated.
Initial Borrower Payment Rate - The annual interest rate used to calculate the borrower's initial cash payment.
Initial interest rate - The original interest rate of the mortgage at the time of closing.
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.
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 fee charged for borrowing money.
Interest accrual rate - The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.
Interest Rate - The percentage of an amount of money, which is paid for its use for a specified time.
Interest Rate Cap - A provision of an ARM limiting how much interest rates may increase per adjustment period.
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.
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.
Judicial foreclosure - A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
Jumbo Loans - Jumbo, or non-conforming, is a term used to describe a loan that does not conform to Fannie Mae or Freddie Mac guidelines.
Legal description - A property description, recognized by law that is sufficient to locate and identify the property without oral testimony.
Lender - An institution that makes loans to borrowers on real estate.
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.
Lien - A legal claim against a property that must be paid when the property is sold.
Lifetime Cap - A provision of an ARM that limits the total increase in interest rates over the life of the loan.
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.
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 - The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Loan -To-Value - (LTV). The loan-to-value ratio (LTV) is the original loan amount divided by the lower of the sales price or the appraised value.
Lock - The period, expressed in days, during which a lender will guarantee a rate.
Lock-in period - The time period during which the lender has guaranteed an interest rate to a borrower.
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 a your credit.
Margin - (Also called "Spread"). The amount the lender adds to the index to determine the Fully Indexed Accrual Rate.
Monthly Housing Expense - Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.
Mortgage - A legal document that pledges a property to the lender as security for a payment of a debt.
Mortgage Banker - A company that originates mortgages exclusively for resale in the secondary market.
Mortgage Broker - A company that for a fee matches borrowers with lenders.
Mortgagee - The lender in a mortgage agreement.
Mortgage Insurance Premium - The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.
Mortgage Note - A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.
Mortgagor - The borrower in a mortgage agreement.
Negative Amortization - (Also called "Deferred Interest"). 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 assets, including cash, less total 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).
Non-liquid asset - An 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.
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.
OTC - (The Office of Thrift Supervision). Charters federal thrifts, serves as the primary federal examiner and regulator of federal and state-chartered savings associations, and administers laws governing savings and loan holding companies.
Owner Occupied - "Owner Occupied" means the property is the owner's primary residence.
Payment Adjustment Period - The length of time (typically a year) between changes to the borrower's P&I (Principal & Interest) payment.
Payment Cap - A limit on the amount the payment can be changed at the end of each Payment Adjustment Period.
Periodic payment cap - A limit on the amount that payments can increase or decrease during any one-adjustment period.
Periodic rate cap - 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 - Principal, Interest, Taxes and Insurance are components of a mortgage payment.
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 - Payment of mortgage loan, or part of it, before due date.
Principal - The amount borrowed or remaining unpaid, also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private Mortgage Insurance - Insurance provided by nongovernmental insurers that protect lenders against loss if a borrower defaults.
Promissory note - A written promise to repay a specified amount over a specified period of time.
Public auction - A meeting in an announced public location to sell property to repay a mortgage that is in default.
Qualifying Ratios - Guidelines applied by lenders to determine how large a loan to grant a homebuyer.
Rate Caps - (Also called "Interest Rate Caps"). A limit on the amount of which the interest rate charged to the borrower can be changed.
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 Broker - A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.
RESPA - (Real Estate Settlement Procedures Act). A Federal law that requires lenders to provide home mortgage borrowers with information about known or estimated settlement costs.
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.
Recission - The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent.
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."
RTC - (Resolution Trust Corporation). Formed to resolve thrift failures over the next three years and dispose of their assets and liabilities.
Second Mortgage - A mortgage that has rights that are subordinate to the rights of the first mortgage holders.
Servicer - The party who has entered into an agreement with the insured to service a loan.
Survey - A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.
Tax - As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.
Tax Lien - A claim against real estate for the amount of its unpaid taxes.
Teaser Rate - Similar to a Payment Discount, but implies either an unusually large initial rate discount or an attempt by the lender to lure an otherwise unqualified borrower into the mortgage.
Title - As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.
Title Company - A company that specializes in examining and insuring titles to real estate.
Title Insurance - Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a "mortgagee's title policy." Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance.
Title Search or Examination - A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record, which would adversely affect the marketability or value of title.
Total Debt Ratio - Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio.
Total expense ratio - Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts.
Treasury index - An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans.
Trustee - A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.
Truth-In-Lending - (TIL). A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.
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.
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.