OA Glossary

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the due-on-sale clause.

Adjustable-Rate Mortgage (ARM)

A mortgage whose interest rate changes periodically based on the changes in a specified index. ARM payments typically are adjusted every six months or once a year.

Adjusted Basis

The cost of a property plus the value of any capital expenditure for improvements to the property minus any depreciation taken.

Adjustment Date

The date that the interest rate changes on an adjustable-rate mortgage.

Adjustment Period

The period elapsing between adjustment dates for an adjustable-rate mortgage.

Amortization

The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.

Amortization Term

The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Annual Percentage Rate (APR)

The annual cost of a mortgage, including interest, loan fees and other costs, stated as a percentage of the loan amount.

Appraisal

An opinion of the market value of a home expressed by a real estate appraiser.

Assessment

A local tax levied against a property for a specific community purpose. 

Assignment

The transfer of a contractual interest or obligation from one person to another such as, but not limited to, a transfer of a mortgage obligation.

Assumable Mortgage

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

Assumption

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. 

Assumption Fee

The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Bridge Loan

A second trust for which the borrower’s present home is collateral, allowing the proceeds to be used to close on a new house before the present home is sold. Also known as a "swing loan."

Balloon Mortgage

A loan that is amortized for a longer period than the term of the loan. Usually this refers to a 30-year amortization and a five-year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due.

Balloon Payment

The final lump sum paid at the maturity date of a balloon mortgage.

Basis point

A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.

Binder

A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Blanket Mortgage

A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgagor)

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Broker

An individual who assists with arranging funding or negotiating contracts for a client but who does not loan the money himself or herself. Brokers usually charge a fee or receive a commission for their services.

Call option

A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

Cash-out refinance

A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.

Certificate of deposit

Commonly known as a "CD," certificates of deposit bear a maturity date and a specified rate of interest. Penalties may apply for early withdrawal.

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.

Change Frequency

The frequency (in months) of payment and/or interest rate changes on an adjustable-rate mortgage.

Clear title

A title that is free of liens or legal questions as to ownership of the property.

Closing

The meeting at which a home sale is finalized. The buyer signs the mortgage, pays closing costs and receives title to the home. The seller pays closing costs and receives the net proceeds from the home sale.

Closing Costs

Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold. Common closing costs include escrow fees, title insurance fees, document recording fees and real estate commissions.

Closing statement

Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.

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.

Conversion Clause

A provision in an adjustable-rate mortgage allowing the loan to be converted to a fixed-rate mortgage at some point during the term. Usually, conversion is allowed at the end of the first adjustment period. 

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 offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

Community property

Is generally joint ownership of assets between spouses or domestic partners. California is a community property state.

Comparables

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

This refers to any interest earned on an account holder's principal balance, as well as any prior interest.

Conforming loan

The maximum loan amounts that Fannie Mae and Freddie Mac will allow for financing one, two, three and four - unit properties.

Consumer Reporting Agency (or Bureau)

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. 

Contingency

A condition that must be fulfilled before a contract is binding.

Contract Sale or Deed

A contract between purchaser and seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional Mortgage

A loan not guaranteed, insured or made by the federal or state government.

Counteroffer

An offer in response to an original offer.

Covenant

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit Report

A report documenting the credit history and current status of a borrower’s credit standing.

Debt-To-Income (DTI) Ratio

The ratio of monthly debt payments to monthly gross income. 

Deed

The legal document conveying title to a property.

Deed in lieu

A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Deed of trust

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

Default

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Deferred Interest

When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.

Delinquency

Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA)

An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Down payment

The portion of the home’s purchase price the buyer pays in cash.

Due-on-Sale-Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest money deposit

A deposit made by the potential home buyer to show that he or she is serious about buying the house.

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 difference between a home’s value and the mortgage amount owed on the home.

Escrow

The holding of documents and money by a neutral third party prior to closing.

Escrow analysis

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow disbursements

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Examination of title

The report on the title of a property from the public records or an abstract of the title.

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.

Fannie Mae

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

Fee simple

The greatest possible interest a person can have in real estate.

Federal Housing Administration (FHA)

A division of the Department of Housing and Urban Development whose main activity is insuring residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

FHA Loan

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.

Finder's fee

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

Firm Commitment

A promise by the Federal Housing Administration to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

First Mortgage

The primary lien against a property.

Fixed Installment

The monthly payment due on a mortgage loan, including payment of both principal and interest.

Fixed-Rate Mortgage (FRM)

A loan on which the interest rate and monthly payment do not change.

Foreclosure

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

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.

Good faith estimate

An estimate of charges which a borrower is likely to incur in connection with a settlement.

Guarantee Mortgage

A mortgage that is guaranteed by a third party.

Hazard Insurance

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Home equity line of credit

A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.

Home equity loan

a loan secured by a second deed of trust on a house, typically used as a home improvement loan.

Homeowner's Warranty

A policy that covers certain repairs such as plumbing or heating of a newly purchased home for a certain period of time.

Housing Expenses-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his or her gross monthly income.

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. A separate number within a standardized numbering system represents each item on the statement. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.

Index

A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. 

Impound Account

An account established by a lender to collect a borrower’s property tax and insurance payments. Impound accounts are normally required on mortgages with down payments of 10 percent or less.

Impound account

An impound account is an account established by the lender to pay a borrower's tax and insurance costs. The borrower's monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. 

Installment

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

Insured Mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

Interest

The fee charged for borrowing money.

Interest Accrual Rate

The percentage rate at which interest accrues on the mortgage.

Interest Rate Ceiling

For an adjustable-rate mortgage, the maximum interest rate as specified in the mortgage note.

Interest Rate Floor

For an adjustable-rate mortgage, the minimum interest rate as specified in the mortgage note.

Interim Financing

A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Interest-only loan

Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. 

Investor

A money source for a lender.

Jumbo mortgage

Type of financing where the loan amount is higher than the conforming loan limits set by the Federal Housing Finance Agency.

Lien

An encumbrance against property for money due, either voluntary or involuntary.

Lifetime cap

A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Listing

A property placed on the market by a listing agent.

Lender

The bank, mortgage company, or mortgage broker offering the loan.

Loan

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

Loan-to-Value (LTV) Ratio

The ratio of the amount of money owed on a home to the home’s value. Example, the LTV ratio for a $100,000 home financed with a $90,000 mortgage would be 90 percent.

Lock period

The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.

Lock-in

A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Margin

The amount a lender adds to the index on an adjustable-rate mortgage to establish the adjusted interest rate.

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Maturity date

The date on which the principal balance of a loan becomes due and payable.

Mortgage Insurance Premium (MIP)

Insurance from FHA to the lender against incurring a loss on account of the borrower’s default.

Monthly Fixed Installment

That portion of the total monthly payment that is applied toward principal and interest.

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Broker

An individual or company that arranges mortgage financing between a borrower and a lender.

Mortgagee

The lender.

Mortgage Insurance

Money paid to insure the mortgage when the down payment is less than 20 percent.

Mortgage Life Insurance

A type of term life insurance specifying that in the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgage Interest Deduction

The ability of mortgage borrowers to deduct the interest paid on a home loan for purposes of federal and state income taxes.

Mortgagor

The borrower or homeowner.

Multiple Listings Service (MLS)

The service combines the listings for all available homes in an area, except for For-Sale-By-Owner properties, in one directory or database.

Negative amortization

Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize."

Net Effective Income

The borrower’s gross income minus federal income tax.

Net Listing

A listing agreement in which the broker’s commission consists of the amount above a net price set by the owner. If the net price is not met, a commission is not earned.

Non-assumption Clause

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non-conforming loan

Also called a jumbo loan. Conventional home mortgages are not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines.

Note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Origination fee

A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

One-year Adjustable

Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin chosen by the lender.

Open Listing

A property marketed by more than one agent at a time.

Origination Fee

A fee charged by a lender for making a mortgage.

Owner Financing

A property purchase transaction in which the party selling the property provides all or part of the financing.

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.

Permanent Loan

A long-term mortgage, usually 10 years or more. Also called an "end loan."

PITI

Principal, interest, taxes and insurance.

Pledged-account Mortgage (PAM)

Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

Points

Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan

Power of Attorney

A legal document authorizing one person to act on behalf of another.

Pre-approval

The process of determining how much money you will be eligible to borrow before you apply for a loan.

Prepaid Expenses

Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty

Money charged for an early repayment of debt. 

Primary Mortgage Market

Lenders, such as savings-and-loan associations, commercial banks, and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets.

Principal

The loan amount borrowed or still owed.

Private mortgage insurance (PMI)

Insurance provided by non government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Qualifying ratios

The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.

Rate

The annual rate of interest on a loan, expressed as a percentage of 100.

Rate Lock

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

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires lenders to give borrowers advance notice of closing costs. RESPA is a federal law that, among other things, allows consumers to review information on known or estimated settlement cost after application and prior to or at settlement. The law requires lenders to furnish the information after application only.

Recission

The cancellation of a contract by putting all parties back to the position before they entered the contract. In some mortgage financing situations involving equity in the home as security, the law gives the homeowner three days to cancel a contract.

Recording Fees

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refinance

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

Residential mortgage credit report (RMCR)

A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.

Security

The property that will be pledged as collateral for a loan.

Seller carry back

An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Simple interest

An amount earned on an account holder's principal, according to a specified rate. This does not include any compounding interest.

Subordination

If you are refinancing your first mortgage and have an existing second or home equity line, one option is to "subordinate" the second mortgage: request that your second mortgage holder go back into the second lien position when you replace your existing first mortgage with the new refinance loan.

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 buildings.

Tenants in common

An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

Title

A legal concept relating to ownership of property.

Title Insurance

Insurance to protect the buyer and lender against losses arising from disputes over the ownership of a property.

Title search

An investigation into the history of ownership of a property to check for liens, unpaid claims, restrictions, or problems, to prove that the seller can transfer free and clear ownership.

Total debt ratio

Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

Truth In Lending Act

A federal law requiring disclosure of the annual percentage rate to homebuyers shortly after they apply for the loan. Also known as Regulation Z.

Underwriting

The process of evaluating a loan application to determine if it meets the lender’s standards.

Usury

Interest charged in excess of the legal rate established by law.

Variable rate

An interest rate that may change once an account opens.

VA Loan

A long-term, low- or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

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