This glossary will help you understand some of the more common terms used during the structuring, application, processing, and closing of your mortgage loan.

Additional Principal Payment

Money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.

Adjustable-Rate Mortgage (ARM)

A mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).

Additional Principal Payment

Money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.

Adjustment Date

The actual date that the interest rate is changed for an ARM.

Adjustment Index

The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.

Affidavit

A signed, sworn statement made by the buyer or seller regarding the truth of information provided.

Amenity

A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

Amortization

A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

Annual Percentage Rate (APR)

A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.

Application

The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal

A document from a professional that gives an estimate of a property's fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraisal Fee

Fee charged by an appraiser to estimate the market value of a property.

Appraisal Management Company (AMC)

A business entity that administers a network of certified, licensed, and approved appraisers to fulfill appraisal assignments and assure compliance with federal regulations.

Appraised Value

An estimation of the current market value of a property.

Appraiser

A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appreciation

An increase in property value.

Arbitration

A legal method of resolving a dispute without going to court.

As-is Condition

The purchase or sale of a property in its existing condition without repairs.

Assessed Value

The value that a public official has placed on any asset (used to determine taxes).

Assessments

The method of placing value on an asset for taxation purposes.

Assessor

A government official who is responsible for determining the value of a property for the purpose of taxation.

Assets

Any item with measurable value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

Automated Underwriting

Loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

Back End Ratio (debt ratio)

A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

Balloon Loan or Mortgage

A mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time elapses; the balance is due or is refinanced by the borrower.

Balloon Payment

The final lump sum payment due at the end of a balloon mortgage.

Bankruptcy

A federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Biweekly Payment Mortgage

A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

Borrower

A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Bridge Loan

A short-term loan paid back relatively fast. Normally used until a long-term loan can be processed.

Buy Down

The seller, builder or buyer pays an amount to the lender so the lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.

Cap

A limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

Capacity

The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.

Capital Gain

The profit received based on the difference of the original purchase price and the total sale price.

Cash-Out Refinance

When a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.

Cash Reserves

A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Certificate of Eligibility

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

Certificate of Reasonable Value (CRV)

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

Certificate of Title

A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Chapter 7 Bankruptcy

Liquidate a bankruptcy that requires assets in exchange for the cancellation of debt.

Chapter 13 Bankruptcy

This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms within a 3- to 5-year period.

Charge-Off

The portion of principal and interest due on a loan that is written off when deemed uncollectible.

Clear Title

A property title that has no defects. Properties with clear titles are marketable for sale.

Closing

The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing, the seller receives payment for the property. Also known as settlement.

Closing Costs

Fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer's closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller's closing costs is 3 to 9 percent.

Closing Disclosure

Is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs).  The Closing Disclosure must be provided at least three days before your closing.

Co-Borrower

An additional person that is responsible for loan repayment and is listed on the title.

Co-Signed Account

An account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.

Co-Signer

A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.

Collateral

Security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

Collection Account

An unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower's credit report.

Commission

An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.

Comparative Market Analysis (COMPS)

A property evaluation that determines property value by comparing similar properties sold within the last year.

Compensating Factors

Factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.

Condominium

A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.

Conforming Loan

Is a loan that does not exceed Fannie Mae and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Construction Loan

A short-term, to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process. For example, once a sub-contractor pours the foundation and it is approved by inspectors the lender will pay for their service.

Consumer Reporting Agency (or Bureau)

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

Contingency

A clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.

Conventional Loan

A private sector loan, one that is not guaranteed or insured by the U.S. government.

Convertible ARM

An adjustable-rate mortgage that provides the borrower the ability to convert to a fixed-rate within a specified time.

Cost of Funds Index (COFI)

An index used to determine interest rate changes for some adjustable-rate mortgages.

Counter Offer

A rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.

Covenants

Legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction, or restrictive covenant.

Credit

An agreement that a person will borrow money and repay it to the lender over time.

Credit Bureau

An agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.

Credit Grantor

The lender that provides a loan or credit.

Credit History

A record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Repair Companies

Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.

Credit Report

A report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

Credit Risk

A term used to describe the possibility of default on a loan by a borrower.

Credit Score

A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 to 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk.

Creditor

The lending institution providing a loan or credit.

Creditworthiness

The way a lender measures the ability of a person to qualify and repay a loan.

Earnest Money (Deposit)

Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

Easements

The legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.

Encroachments

A structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.

Encumbrance

Anything that affects title to a property, such as loans, leases, easements, or restrictions.

Equal Credit Opportunity Act (ECOA)

A federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity

An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Escrow

Funds held in an account to be used by the lender to pay for home insurance and property taxes. A third party may also hold the funds until contractual conditions are met and then paid out.

Escrow Analysis

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

Escrow Account

A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Escrow Payment

A monthly payment held by the taxes, hazard insurance, mortgage insurance, lease payments, and other items.

HECM (Reverse Mortgage)

The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.

Hazard Insurance

Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

Home Equity Line of Credit

A mortgage loan, usually a second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.

Home Equity Loan

A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.

Home Inspection

An examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.

Home Warranty

Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time and does not cover the home's structure.

Homeowner's Insurance

An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.

Homeownership Education Classes

Classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved, qualify for a loan, choose an affordable home, go through financing and closing processes, and avoid mortgage problems that cause people to lose their homes.

Homestead Credit

Property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.

Housing Counseling Agency

Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.

Housing Expense Ratio

The percentage of gross monthly income budgeted to pay housing expenses.

HUD

The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HVAC

Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

Index

The measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

Initial Interest Rate

This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."

Inquiry

A credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.

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

A fee charged for the use of borrowing money.

Interest Credit

The credit of daily interest given back to a borrower when closing a loan within the first week of the month and the borrower has elected to make the first payment of the loan due on day 1 of the next following month. (In lieu of paying interest through the end of the month at closing and then skipping a month for the first payment)

Interest Rate

The amount of interest charged on a monthly loan payment, expressed as a percentage.

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.

Insurance

Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

Joint Tenancy (with Rights of Survivorship)

Two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.

Judgment

A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Jumbo Loan

Or non-conforming loan is a loan that exceeds Fannie Mae and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Late Payment Charges

The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

Lease

A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period.

Lease Purchase (Lease Option)

Assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lender

A term referring to a person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.

Liabilities

A person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.

Liability Insurance

Insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is normally included in homeowner's insurance policies.

Lien

A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.

Lien Waiver

A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.

Life Cap

A limit on the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).

Line of Credit

An agreement by a financial institution such as a bank 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.

Listing Agreement

A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Loan

Money borrowed that is repaid with interest.

Loan Estimate

An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Loan Fraud

Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.

Loan Officer (Consultant)

A representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans.

Loan Origination Fee

A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Loan Servicing

The process of collecting monthly mortgage payments, which includes dispersing property taxes and insurance payments.

Loan Servicer

Servicers monitor non-performing loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.

Loan to Value (LTV) Ratio

A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Lock-In

Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Lock-in Period

The length of time that the lender has guaranteed a specific interest rate to a borrower.

Margin

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value

The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Maturity

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

Modification

When a lender agrees to modify the terms of a mortgage without refinancing the loan.

Mortgage

A lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.

Mortgage Banker

A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.

Mortgage Broker

A firm that originates and processes loans for a number of lenders.

Mortgage Life and Disability Insurance

Term life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability. The amount of coverage decreases as the principal balance declines. There are many different terms of coverage determining amounts of payments and when payments begin and end.

Mortgage Insurance

A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).

Mortgage Insurance Premium (MIP)

A monthly payment usually part of the mortgage payment paid by a borrower for mortgage insurance.

Mortgage Interest Deduction

The interest cost of a mortgage, which is a tax-deductible expense. The interest reduces the taxable income of taxpayers.

Mortgage Modification

A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Mortgage Note

A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.

Mortgage Qualifying Ratio

Used to calculate the maximum amount of funds that an individual traditionally may be able to afford. A typical mortgage qualifying ratio is 28:36.

Mortgagee

The lender in a mortgage agreement.

Mortgagor

The borrower in a mortgage agreement.

Multiple Listing Service (MLS)

Database and software used by real estate brokers representing sellers under a listing contract to widely share information about properties with other brokers who may represent potential buyers or wish to cooperate with a seller's broker in finding a buyer for the property or asset. The listing data stored in a multiple listing service's database is the proprietary information of the broker who has obtained a listing agreement with a property's seller.

National Credit Repositories

Currently, there are three companies that maintain national credit reporting databases. These are Equifax, Experian, and Trans Union, referred to as Credit Bureaus.

Negative Amortization

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that is not covered is added to the unpaid principal balance. This means that even after making many 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 not high enough to cover the interest due.

Net Income

Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.

No Cash Out Refinance

A refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cash against the equity of the home. Also called a "rate and term refinance."

Note

A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period.

Note Rate

The interest rate stated on a mortgage note.

Notice of Default

A formal written notice to a borrower that there is a default on a loan and that legal action is possible.

Non-Conforming Loan

is a loan that exceeds Fannie Mae and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Notary Public

A person who serves as a public official and certifies the authenticity of required signatures on a document by signing and stamping the document.

Original Principal Balance

The total principal owed on a mortgage prior to any payments being made.

Origination

The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination Fee

The charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals one percent of the loan amount.

Ownership

Ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.

Owner's Policy

The insurance policy that protects the buyer from title defects.

PITI

Principal, Interest, Taxes, and Insurance: the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

PITI Reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Payment Cap

A limit on how much an ARM's payment may increase, regardless of how much the interest rate increases.

Payment Change Date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Payment Due Date

Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.

Personal Property

Any property that is not real property or attached to real property. For example, furniture is not attached however, a new light fixture would be considered attached and part of the real property.

Planned Unit Development (PUD)

A development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner's or neighborhood association. Homeowners usually are required to participate in the association via a payment of annual dues.

Points

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000, one point means you pay $1000 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan-closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Power of Attorney

A legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority or can be limited to certain acts or certain periods or both.

Pre-Approval

A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections and underwriting guidelines.

Predatory Lending

Abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.

Pre-foreclosure Sale

A procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower's debt.

Prepayment

Any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, the payoff of the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized.

Prepayment Penalty

A provision in some loans that charge a fee to a borrower who pays off a loan before it is due.

Pre-Foreclosure Sale

Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-Qualify

A lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.

Premium

An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Price Range

The high and low amount a buyer is willing to pay for a home.

Prime Rate

The interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.

Principal

The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.

Private Mortgage Insurance (PMI)

Insurance purchased by a buyer to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is generally maintained until over 20 percent of the outstanding amount of the loan is paid or for a set period, seven years is normal. Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or through private mortgage insurance companies (PMI).

Promissory Note

A written promise to repay a specified amount over a specified period.

Property (Fixture and Non-Fixture)

In a real estate contract, the property is the land within the legally described boundaries and all permanent structures and fixtures. Ownership of the property confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property.

Property Tax

A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.

Property Tax Deduction

The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from there total income.

Public Record Information

Court records of events that are a matter of public interest such as credit, bankruptcy, foreclosure and tax liens. Creditors regard the presence of public record information on a credit report negatively.

Punch List

A list of items that have not been completed at the time of the final walk through of a newly constructed home.

Purchase Offer

A detailed, written document that makes an offer to purchase a property, and that may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally binding contract, sometimes called the Sales Contract.

Qualifying Ratios

Guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.

Quitclaim Deed

A deed transferring ownership of a property but does not make any guarantee of clear title.

RESPA

Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Rate Cap

A limit on an ARM on how much the interest rate or mortgage payment may change. Rate caps limit how much the interest rates can rise or fall on the adjustment dates and over the life of the loan.

Rate Lock

A commitment by a lender to a borrower guaranteeing a specific interest rate over a period at a set cost.

Real Estate Agent

An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

Real Estate Settlement Procedures Act (RESPA)

A law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Real Property

Land, including all the natural resources and permanent buildings on it.

Recorder

The public official who keeps records of transactions concerning real property. Sometimes known as a "Registrar of Deeds" or "County Clerk."

Recording

The recording in a registrar's office of an executed legal document. These include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.

Recording Fees

Charges for recording a deed with the appropriate government agency.

Refinancing

Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Reinstatement Period

A phase of the foreclosure process where the homeowner has an opportunity to stop the foreclosure by paying money that is owed to the lender.

Remaining Balance

The amount of principal that has not yet been repaid.

Repayment Plan

An agreement between a lender and a delinquent borrower where the borrower agrees to make additional payments to pay down past due amounts while making regularly scheduled payments.

Reverse Mortgage (HECM)

The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.

Risk Based Pricing

Fee structure used by creditors based on risks of granting credit to a borrower with a poor credit history.

Sale Leaseback

When a seller deeds property to a buyer for a payment, and the buyer simultaneously leases the property back to the seller.

Second Mortgage

An additional mortgage on property. In case of a default, the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.

Secondary Mortgage Market

The buying and selling of mortgage loans. Investors purchase residential mortgages originated by lenders, which in turn provides the lenders with capital for additional lending.

Secured Loan

A loan backed by collateral such as property.

Security

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

Serious Delinquency

A mortgage that is 90 days or more past due.

Service Release Premium (SRP)

A premium paid to banks when they sell a loan on the secondary market.

Servicer

A business that collects mortgage payments from borrowers and manages the borrower's escrow accounts.

Servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Settlement

Another name for closing.

Soft Pull or Soft Inquiry Credit Report

A credit review that does not affect a borrower’s credit score. It may not contain all data and is usually based off of one or two credit bureaus. A Hard pull is required for extension of credit, contains information from three credit bureaus, and will report as an inquiry.

Straw Buyer

A person, (purchaser) is knowingly acquiring an item or service for someone who is, for whatever reason, unable to purchase the item or service themselves.

Subordinate

To place in a rank of lesser importance or to make one claim secondary to another.

Survey

A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Surveys are conducted by licensed surveyors and are normally required by the lender in order to confirm that the property boundaries and features such as buildings, and easements are correctly described in the legal description of the property.

Underwriting

The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

Up Front Charges

The fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker's fees, insurance, and other charges.

USDA (United States Department of Agriculture)

Is the federal executive department responsible for developing and executing laws relating to farming, agriculture, forestry, and food. Through its Rural Development it offers housing programs for those living outside urban centers that have low household incomes.

VA (Department of Veterans Affairs)

A federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

VA Mortgage

A mortgage guaranteed by the Department of Veterans Affairs (VA).

Variable Expenses

Costs or payments that may vary from month to month, for example, gasoline or food.

Vested

A point in time when you may withdraw funds from an investment account, such as a retirement account, without penalty.

Walk Through

The final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.

Warehouse Lending

Refers to mortgage banker who borrows funds on a short-term basis using permanent mortgage loans as collateral. This temporary financing lasts until the mortgages are sold to another investor.

Warranty Deed

A legal document that includes the guarantee the seller is the true owner of the property has the right to sell the property and there are no claims against the property.

Zoning

Local laws established to control the uses of land within a particular area. Zoning laws are used to separate residential land from areas of nonresidential use, such as industry or businesses. Zoning ordinances include many provisions governing such things as type of structure, setbacks, lot size, and uses of a building.