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   A ADJUSTABLE RATE MORTGAGE A general term for any mortgage in which the interest rate and, generally, the payments change over the life of the loan. The interest rate is adjusted to match the rise or fall of a preselected interest rate the borrower's regular payments will increase or decrease accordingly. Different types of adjustable-rate mortgages (ARMs) have different frequencies for these adjustments. Some ARMs have limits on payment and interest rate changes and the maximum interest rate over the life of the loan. To the borrower's advantage, the initial rate of an ARM is usually low, permitting the purchase of real estate that otherwise would be unaffordable with a fixed-rate mortgage. But, there is a risk of higher payments later on. AMORTIZATION PERIOD That period of time over which a calculated mortgage payment will fully repay a set loan amount at a set interest rate. ACCELERATION CLAUSE A common provision of a mortgage or note providing the holder with the right to demand that the entire outstanding balance be immediately due and payable in the event of default. ACCRUED INTEREST The interest that has accumulated over the time elapsed since the borrower's last payment. ADJUSTABLE INTERVAL When an adjustable-rate mortgage (ARM) is negotiated, provision is made for the intervals of the interest rate adjustment. This allows the lender to adjust the interest rate charged and the payments required from the borrower at prescheduled times. 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 The actual interest rate the borrower pays when all the cost of obtaining credit are included. 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. APPRAISED VALUE An estimation of property value made by a qualified expert. APR See Annual Percentage Rate ARM See Adjustable-Rate Mortgage ASSESSMENT Tax on real property either by an annual property tax based on current fair market value or via special assessments for sewers, public improvements, etc. ASSUMPTION A means by which the title/mortgage may be transferred to another party with or without release of liability on the note. B BASIS POINT 1/100 of 1% (0.01%) BUYDOWN A sum of money paid to the lender at closing to reduce the borrower's out-of-pocket monthly payment. A buydown can be temporary or permanent. BALLOON MORTGAGE A mortgage with a 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 specific date, usually at the end of such periodic installments.   C CAP A limit placed on payments, interest rates and/or the balance of a loan. Caps can limit increases by either a dollar amount or a percentage. CLOSING SETTLEMENT A statement of the funds received and spent at the closing of a real estate sale. The closing statement is furnished by the real estate closing agent to the buyer and seller separately. The standardized federal form, HUD-1, is used in most residential transactions. CLOUD ON TITLE An outstanding claim/lien or restriction on the property that, if valid, affects the owner's clear ownership rights to the property. A cloud can be removed from the title by a court action, a release or a deed. CO-BORROWER A party 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 "co-mortgagor." COLLATERAL Property pledged as a 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. COMMITMENT FEE A sum of money paid by the seller of mortgages to the investor in return for the investor's commitment to purchase a package of loans at some future date. This can be a non-refundable fee or it can be in the form of a refundable fee to be repaid to the seller upon fulfillment of the commitment. CONDOMINIUM A form of ownership of real property. The purchaser receives title to a particular unit and a proportional interest in certain common areas. A condominium generally defines each unit as a separately owned space limited to the interior surfaces of the perimeter walls, floors and ceilings. Title to the common areas is in terms of percentages and refers to the entire project less the separately owned units. CONDUIT A mortgage market intermediary that consistently buys mortgage loans from retail originators on a flow or bulk basis. A conduit will repackage these loans, typically into security form, and then sell the security to raise cash for additional purchases. CONSTRUCTION LOAN A short-term interim loan for financing the cost of construction of real property. Payments are made to the builder at periodic intervals as the construction progresses. CONSTRUCTION LOAN AGREEMENT A written agreement between a lender and/or a borrower and a builder in which the specific terms and conditions of construction and/or the construction loan, including the schedule of payments, are spelled out. CONSTRUCTION LOAN DRAW The periodic/partial disbursement of the construction loan, based on the schedule of payments in the loan agreement. 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 government agency approval is required of the lender, borrower or property. It is called "conventional" because it conforms to accepted standards, modified within legal bounds by mutual consent of the borrower and the lender. Also called "conventional residential mortgage." CONVEYANCE In real property law, a transfer of legal title to land. COST APPROACH In an appraisal, a method of establishing the market value of a property by considering how much the subject property would cost if it were built today.   D DEED The formal written document that transfers the rights of ownership and possession (that is, the title) from the seller to the buyer. DEED OF TRUST A legal document which conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt. In states where it is used, a deed of trust accomplishes essentially the same purpose as a regular mortgage. Also called "trust deed" or "trust indenture." In some states, this is used in place of a mortgage. Three people are involved in a deed of trust: the borrower, the lender and the trustee. The borrower transfers the legal title to the owner. If the borrower pays the mortgage as agreed, the trustee gives the legal title to the owner. If the borrower does not pay the mortgage as agreed, the trustee can sell the property. (See Mortgage.) DE MINIMUS PUD A planned unit development (PUD) in which the common areas are the minimal value and have little influence on the enjoyment of the premises or the value of the property. DISCOUNT The amount of money, usually stated as a percentage, deducted from the face value of a note. The borrower receives the net amount after the discount has been deducted. The discount is computed to give the effective rates of interest agreed upon. DUE-ON-SALE CLAUSE A clause allowing the lender to demand payment of the entire loan balance upon sale or other transfer of title by the borrower to a third party.   E ENCROACHMENT An improvement that intrudes or invades illegally upon another's property. EQUAL CREDIT OPPORTUNITY ACT 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 MORTGAGE A debt secured by a lien against real estate that usually is subordinate to a previous mortgage and is based or given on the amount of equity one has in real estate after deducting the previous mortgage. EQUITY REFINANCE The borrower obtains a new loan, taking cash out of the equity which has built up in the original loan, resulting in a larger loan balance than the original loan. Also called "cash take-out refinance." 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 AGREEMENT An agreement to allocate funds to be set aside in a special account to guarantee payments that occur after settlement. ESCROW PAYMENT The portion of a borrower's monthly payment that is set aside by the lender in an escrow account to pay the taxes, hazard insurance, mortgage insurance, ground rents and other special items as they come due.   F 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) or guaranteed by the Veterans Administration (VA), as well as conventional home mortgages FHA MORTGAGE A mortgage with federally sponsored mortgage guaranty insurance provided through the Federal Housing Administration (FHA). 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. FIXTURE Personal property that becomes real property upon being attached to real estate. FULLY INDEXED ACCRUAL RATE The base index value of an adjustable-rate mortgage (ARM) plus the highest gross margin during the life of the loan.   G GARNISHMENT A legal proceeding in which a person's money or wages are taken for payment of a debt. The amount that may be taken is set by statute (usually as a percentage) and, in most states, a judgment is necessary before garnishment. GIFT LETTER A letter 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 breakdown of the estimated closing costs. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION A government corporation within the Department of Housing and Urban Development (HUD) that provides assistance for the purchase of certain Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages and guarantees securities backed by pools of mortgage loans. GRADUATED PAYMENT MORTGAGE A mortgage in which the monthly payment will generally increase for a set period of time and then reach an amount that remains constant for the rest of the amortization period. The increasing payment feature can be incorporated into fixed-rate or floating-rate loans. For example, the borrower may agree to make initial monthly payments of $700 that will rise gradually to $900 by the fifth year, where the payment will stay for the remainder of the loan. GUARANTEED LOAN When a government agency or other party guarantees a loan, it agrees to reimburse the lender if the borrower fails to pay back the loan as promised. A loan can be guaranteed for all or a portion of the unpaid principal. An example is a Veterans Administration (VA) loan to a veteran.   H 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. HUD See Department of Housing and Urban Development   I INDEX 1) Measurement used by lenders in a market to determine changes in an accrual rate. This can be based on a published, independent measure of current interest rates, such as a Treasury Bill. An index must be readily verifiable by the borrower and beyond the control of the lender. It provides a guideline that should accurately reflect the current cost of lending money. 2) A measure of prevailing market interest rates. The index is used with the margin to determine a new interest rate at the time of the adjustment. If the index increases, the interest rate increases unless an interest rate cap is reached. Often, these interest rates are the rates for the U.S. Treasury securities. Treasury securities have become popular as indexes because they are so easy to monitor and reflect economic conditions accurately. 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, 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. INVESTOR In mortgage lending, the holder of a mortgage, or a permanent lender for whom the mortgage banker services the loan.   J JUDGMENT Final determination by a court of the rights and claims of the parties in action. K     L LETTER OF COMMITMENT A document that advises the borrower that the loan has been approved, spells out the terms and conditions of the loan and confirms the closing date. 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 CLOSING A meeting between the borrower and the 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 TO VALUE Mathematical computation that compares the loan amount to the value of the property. LOAN-TO-VALUE RATIO The ratio, expressed as a percentage, of the amount of a loan (numerator) to the value or selling price of real property (denominator). Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks, savings and loans, or government-insured loans are set by statute. LOT EQUITY If a borrower owns the land and is seeking a mortgage for a home under construction, the value of the land may be recognized as a down payment equivalent to cash.   M MARGIN Under the terms of an adjustable-rate mortgage (ARM), the margin is a premium that a lender charges which is added to the index. This premium is typically two or three percentage points. Once the lender specifies the margin, it remains fixed. MISREPRESENTATION Information that is provided to and is relied upon by a third party as fact, but that is untrue and material to the risk assumed. The information may be provided with the knowledge that it is untrue and with the intent to deceive, or provided as the truth without knowing for a fact that it is not true. MORTGAGE A pledge or security for the payment of a debt. MORTGAGE BACKED SECURITIES Bond type investment securities representing an undivided interest in a pool of mortgages or trust deeds. Security guaranteed by the Government National Mortgage Association (GNMA), issued to savings and loan associations, mortgage bankers, commercial banks and other institutions. The GNMA security holder is backed by the "full faith and credit of the United States." MORTGAGE BANKING 1) The origination, sale and servicing of mortgage loans by a firm or individual. 2) The packaging of mortgage loans secured by real property to be sold to a permanent investor with servicing usually retained by the originator for the life of the loan for a fee. MORTGAGE BROKER An individual or a firm that act as an agent for both the borrower and the lender of a mortgage loan. The broker places the borrower and the lender in contract 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 the loan commitment, prepare the loan documents or service the loan. MORTGAGE LOAN CORRESPONDENT A mortgage banker who services mortgage loans as an agent for either the owner of the mortgage or an investor. Also applies to the mortgage banker in the role of originator of mortgage loans for an investor.   N NON-OWNER-OCCUPIED PROPERTY Property purchased by a borrower not for a primary residence but as an investment with the intent of generating rental income, tax benefits and profitable resale. NOTE RATE The interest rate on the mortgage loan.   O ORIGINATION FEE The fee that the lender charges the borrower to cover the cost of issuing a loan commitment. It pays for processing the loan which includes collecting information about the borrower's creditworthiness and the property. The fee is usually computed as a percentage (for example, 1%) of the mortgage loan. It usually does not include fees for appraisals, credit reports, inspections and loan documentation preparation. OWNER-OCCUPIED PROPERTY The borrower or a member of the immediate family lives in the property as a primary residence. PAR The principal amount of a mortgage with no premium or discount (100%).   P PAYMENT SHOCK Occurs when the terms of a mortgage instrument require an increase payment and the borrow is unable to make or keep up with the increased payment obligations. PERFECTING TITLE The process of eliminating any and all claims, other than the owner's, to the title of a property. PERMANENT FINANCING A mortgage loan, usually covering development costs, interim loans, construction loans, financing expenses, and marketing, administrative, legal and other costs. This loan differs from a construction loan in that the financing goes into place after the project is constructed and open for occupancy. It is a long-term obligation, generally for a period of 10 years or more. PITI See Principal Interest Real Estate Tax Insurance. 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. PLANNED UNIT DEVELOPMENT A project that may consist of any combination of one-to-four-family homes, condominiums and other styles of residential housing. The individual unit and often the real estate under it are owned by the individual owner. The common facilities are owned and maintained by a homeowner's association. 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 penalty under a note, mortgage or deed of trust imposed when the loan is paid before its maturity date. PRIMARY UNDERWRITER An underwriter at the lending institution who takes the most comprehensive look at the entire loan package because he or she is responsible for the decision whether to make a loan to a prospective borrower. PROCESSING Gathering the loan application and all of the required supporting documents (including the property appraisal, credit report, credit history, and income and expenses) so that a lender can consider the borrower for a loan. PROPERTY APPRAISAL A supportable estimate of a property's market value determined by a trained and certified appraiser who measures the likelihood that a property will maintain its value over the duration of the loan. PUD See Planned Unit Development.   Q QUALIFYING INCOME RATIO Income analysis compares only the amount of the proposed monthly mortgage payment 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.   R RATE AND TERM REFINANCE The borrower replaced a mortgage loan on the subject property with another mortgage loan for the purpose of getting a better interest rate and loan term. REAL ESTATE SETTLEMENT PROCEDURES ACT Federal legislation designed to help home buyers compare settlement costs among lenders and to eliminate kickbacks. RECASTING An adjustment to the current mortgage- a loan modification- that does not involve the issuance of a new mortgage guaranty insurance certificate. With a recast loan, a modification may be made in the type of instrument involved. In whatever form a recast loan takes, the major benefit to the borrower is the potential for substantially reduced mortgage payments. REFINANCE 1) To change a loan from one financial institution to another, or to rewrite the terms of a loan contract within the existing lending institution. 2) The payment of a debt from the proceeds of a new loan, using the same property as security. REGULATION X Federal regulation prescribed by the Secretary of Housing and Urban Development (HUD) to implement Real Estate Settlement Procedures Act (RESPA). REGULATION Z Federal regulation prescribed by the Federal Reserve Board to carry out the purposes of the Truth-in-Lending Act. RESPA See Real Estate Settlement Procedures Act. REVIEW UNDERWRITER Usually an underwriter from the mortgage insurer or mortgage investor. The review underwriter takes a less comprehensive look at the loan package and relies more on the findings of the primary underwriter.   S SEASONED LOAN A loan that has been closed and on a lender's books for at least 12 months. SECONDARY FINANCING Loans secured by the property, but subordinate to the first mortgage. 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 second mortgage. SECURITY The collateral or property given, deposited or pledged to ensure the fulfillment of an obligation or payment of debt. SERVICING All the management and operational procedures that the mortgage company handles for the life of the mortgage, up through foreclosure if necessary, including: collecting the mortgage payment, ensuring that the taxes and insurance charges are paid promptly, and sending an annual report on the mortgage and the escrow accounts. (See Escrow Account.) SETTLEMENT STATEMENT The complete breakdown of costs involved in the real estate transaction for both the seller and buyer. SOLD LOAN A mortgage loan that has been sold to another institution or investor. Sold loans may continue to be serviced by the seller. 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. T TAKE-OUT COMMITMENT A promise to make a loan at a future specified time. It is most commonly used to designate a higher-cost, shorter-term, back-up commitment as a support for construction financing until a suitable, permanent loan can be secured. TAX LIEN A lien on a property by local, state or federal government for the amount of due and unpaid taxes. TIL See Truth-in-Lending Act. TITLE The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed, which specifies in whom the legal state is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift or through the foreclosure of a mortgage. TITLE INSURANCE BINDER 1) A report issued by a title insurance company stating the condition of title to certain property as of a certain date and also stating conditions which, if satisfied, will cause a policy of title insurance to be issued. Also called "commitment." 2) A policy of title insurance (used primary by investors) calling for a reduced rate for a future policy if the property is sold within a specified period. 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. (a) Owner's Title Policy: Usually issued to the landowner himself. The owner's title insurance policy is bought and paid for only once and then continues in force without any further payment. Owner's Title Insurance policies are not assignable. (b) Mortgagee's Title Policy: Issued to the mortgagee and terminates when the mortgage debt is paid. In the event of foreclosure, or if the mortgagee acquires title from the mortgagor in lieu of foreclosure, the policy continues in force, giving continued protection against defects of title which existed at, or prior to, the date of the policy. TRUTH-IN-LENDING ACT Federal legislation that provides borrowers with specific information on the cost of obtaining credit.   U 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. UNIFORM SETTLEMENT STATEMENT Provides an itemization of both the seller's and borrower's costs for closing the loan.   V VARIABLE-RATE MORTGAGE A long-term mortgage loan in which the interest rate may vary or float periodically throughout the term of the loan. The fluctuations are generally based on an interest rate index and are restricted under the terms of the mortgage. Also called "adjustable-rate mortgage." 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. VETERANS ADMINISTRATION An independent agency of the federal government which helps veterans get long-term, low down payment mortgages. The agency normally does this by guaranteeing a portion of a lender's loans against loss. In return for this guarantee, lenders must follow prescribed procedures for loans established by the Veterans Administration (VA). VOD See Verification of Deposit. VOE See Verification of Employment. W WARRANTY DEED A deed used in many states to convey good fee simple title to real property. X   Y   Z