| A Abstract (of title) A summary of public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any defects which must be cleared before a buyer can be issued a clear and insurable title. Acceleration Clause Stipulation in the mortgage that the entire unpaid balance of the debt may become due and payable if default of expressed conditions should occur. Acknowledgment Formal declaration before a public official (typically a notary) that one has signed a document. Acre A measure of land equal to 43,560 square feet. Adjustable-Rate Mortgage A loan with an interest rate that changes periodically in keeping with a current index like one-year treasury bills. The rate of interest is the sum of the index plus a margin (the margin stays fixed for the life of the loan). Adjustment Date The date on which the interest rate changes for an adjustable-rate mortgage (ARM). Adjustment Period The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM). Agent A representative authorized to act on behalf of another in dealings with third parties. Agreement of Sale An agreement between parties for the sale of real estate. In some areas it is also known as a purchase agreement or land contract. Amortization The method of repayment whereby, the amount you borrow is repaid gradually through regular blended monthly payments of principal and interest. Amortization Schedule A table showing the amounts of principal and interest due and the remaining outstanding balance with each payment to be made on a mortgage. Amortization Term The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months. Annual Debt Service The amount of money required each year for the payment of all mortgage interest and principal. Annual Membership Amounts that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee". Annual Percentage Rate (APR) A term used in the Federal Truth-In-Lending Act that expresses as a percentage the measure of the cost of credit expressed as a yearly rate. Includes such items as interest, mortgage insurance, and loan origination. This is one way to compare loan programs offered by different lenders. Application A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security. Appraisal A report made by a qualified appraiser that sets forth an opinion or estimate of value of a parcel of real estate. In general, the value is based on three approaches: cost, market, and income. Appraiser A person qualified by education, training, and experience to estimate the value of real property and personal property. Appraisers render a "professional" service. Appreciation An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation. Arrears A payment made after its due date. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance. Assessed Value Worth established for each unit of real property for tax purposes by a county property appraiser. Asset Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc). Assignment The transfer of the rights and obligation under a contract from one person or entity to another. Assumable Mortgage A mortgage whose terms permit it to be taken over ("assumed") by a party other than the original borrower. Lenders generally require credit review of the new borrower and may charge a fee for the assumption. Assumption Agreement by a buyer to assume the liability and repaying of an existing mortgage. Assumption Clause A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property. Assumption Fee The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage. Attached Home A home that has one or more common walls adjoining another home. Condominiums and duplexes are examples of attached homes. Attorney In Fact One who holds a Power of Attorney granted by another which authorizes the holder ("attorney in fact") to execute certain documents on behalf of the grantor. B Balance Sheet A financial statement that shows assets, liabilities, and net worth as of a specific date. Balloon Mortgage A mortgage with periodic installments of principal and interest that do not fully amortize the loan as of its maturity date. With such mortgages, the outstanding or unpaid principal balance is due and payable in full as of its maturity date. Balloon Payment The final lump sum payment that is made at the maturity date of a balloon mortgage. Bankrupt A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee. Bankruptcy A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. Typically people file for Chapter 7 (all debts wiped out) or Chapter 13 (establishes payment plan to pay off debts). Basis Point One one-hundredth (1/100) of a percent. Used to describe the amount of change in the yield of financial instrument, including mortgages. Beneficiary The person designated to receive the income from a trust, estate, or deed of trust. Bill of Sale A written document that serves to transfer interest in title to personal property. Binder A preliminary agreement secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate. Biweekly Mortgage Payment A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. This result for the borrower is a substantial saving of interest. Blanket Mortgage A mortgage covering more than one piece of property. Bond An interest-bearing certificate of debt with maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust. The best known is the 30-year Treasury Bond by the U.S. Government. Breach A violation of any legal obligation. Bridge Loan A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing. Broker A person who, for a commission or a fee, brings parties together and assist in negotiating contracts between them. Mortgage brokers help consumers locate suitable real estate loans and are paid a fee for their services. Buydown A financing technique in which points are paid to the lender by the seller or builder that lowers (buys down) the effective interest rate paid by the buyer/borrower, thus reducing the amount of the monthly payment for a set period of time. See "temporary buydown". Buyer’s Broker Agent who takes the buyer as a client, and is obligated to represent their interest above all others, and owes specific fiduciary duties. C 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 (interest rate) Refers to the maximum allowable interest rate increase on an adjustable-rate mortgage. Such "caps" are generally applied both to the periodic changes as well as the absolute changes in the interest rate over the life of the loan. Most ARMs have a periodic interest rate cap that is around 2% a year and a lifetime interest rate cap of around 5%-6% over the life of the loan. Capital Gain The profit from the sale of a capital asset, including real property. Capital Improvement Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. Cash Flow The resulting amount when annual debt service, tax liability and capital improvement costs are subtracted from net operating income. 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. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose. Cash Reserve Amounts of money usually equal to two or more monthly payments of a mortgage, which a lender requires a borrower to have after the closing of the mortgage. Caveat Emptor A legal term meaning "let the buyer beware". Certificate of Completion A document normally issued by an appraiser which states that a construction project is completed in accordance with the building plans and specifications which pertain to the project. Certificate of Eligibility A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880. Certificate of Occupancy Written authorization given by a municipality which allows a newly completed or remodeled structure to be inhabited. 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 current owner legally holds the title to real estate. Cistui Que Trust One having an equitable interest in property, legal title being vested in trustee. Chain of Title The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent. Change Frequency The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage. Chattel Term used to describe personal property. Clear Title Title to a parcel of real estate that is not encumbered or "clouded" with defects or liens. Closing The occasion on which a real estate transaction or mortgage is finally settled ("closed") between the parties. The title of the property is transferred to the new owners and funds are transferred to the appropriate parties (seller, lender, real estate broker, etc). Closing Costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring the ownership of a parcel of real estate. Also refers to the costs (over and above the amount of the mortgage) incurred by a borrower upon "closing" of a mortgage. Also referred to as "settlement costs". Closing Statement Also referred to as the HUD1. The final settlement 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 affects the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action. Collateral An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract. Collection The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary. Co-Maker A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser. Combined Loan-To-Value (CLTV) The relationship between the unpaid principal balances of all the mortgages on a property (first and second usually) and the property’s appraised value (or sales price, if it is lower). Commission The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally paid as a percentage of the sales price in a real estate transaction or of the loan amount in a mortgage transaction. Commitment An agreement, verbal or written, made by a lender to loan money to a borrower subject to compliance with certain conditions. Also referred to as a "loan approval" or "notification of loan approval". Comparables An abbreviation for "comparable properties", used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have been recently sold. Comparables help the appraiser determine the approximate fair market value of the subject property. Conditional Commitment A lender's promise to issue a loan subject to certain stipulations. Generally, the lender will not fund the loan until the conditions have been met. Conditional Offer Purchase offer in which the buyer proposes to purchase only after certain occurrences (sale of another home, finding a loan commitment, etc.) have transpired. Condominium A multiunit project consisting of individual ownership of a dwelling unit and undivided ownership of common areas. Condominium Conversion Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership. Conforming Loan The current conforming loan limit is $300,700 and below. Conforming loan limits change annually. Consideration Anything of value given to induce another to enter into a contract. An earnest money deposit on a sales contract is consideration. Construction Contract An agreement between a general contractor and an owner which sets forth the terms and conditions under which building shall occur on a parcel of real estate, and provisions for the owner’s payment to the general contractor for such building. Construction Loan A short-term, interim loan for financing the cost of construction in which the lender advances funds at periodic intervals as the construction progresses. Construction Loan Agreement A written agreement among a lender and a builder and/or owner in which the specific terms of a construction loan, including the schedule of disbursements, are set forth. Construction Loan Draw The partial disbursement of the proceeds of a construction loan based on the disbursement schedule in a construction loan agreement and the progress of completion of the project. Consumer Reporting Agency (or bureau) An organization that prepares reports that is used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources. Contingency A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. Contract An agreement between two or more competent parties to do, or not do, some legal act for a legal consideration. Contract of Sale A purchase transaction in which the buyer receives possession of the property, but the seller retains title. Conventional Mortgage A real estate loan granted that is neither FHA-insured nor VA-guaranteed. Convertible ARM An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions. The conversion is outlined in the mortgage note and has certain restrictions. Convertibility Clause A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination. At the time of the conversion, the new fixed rate is set at a rate then prevailing for fixed-rate mortgages. The conversion feature may be available at extra cost. Cooperative (co-op) A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit. Corporation A form of business organization recognized as a separate entity (legal person) having rights and obligations distinct from its shareholders and/or officers and directors. Corporate Relocation Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity. Cost Basis Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on permanent improvements and other cost, minus any depreciation claimed on tax returns over the years. Cost Estimate A document which breaks out the various costs of construction of a structure by item. Also referred to as "cost breakdown". Cost of Funds Index (COFI) An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. Cost-Plus Contract A construction contract in which the contract price is equal to the cost of construction plus a profit allowance to the builder; as opposed to a fixed bid contract. Covenant A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure. Credit An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date. Credit History A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner. Credit Report A report prepared by a credit reporting agency for a lender which sets forth the credit standing of a prospective borrower, and which is used in the process of determining the borrower’s creditworthiness. >>Top of Page D Declaration of Restrictions A set of restrictions filed by a sub-divider to cover an entire tract or subdivision. Deed in Lieu A deed granted by a mortgagor (borrower) to a mortgagee (lender) to satisfy a debt and avoid foreclosure. Deed of Trust A document used in some states in place of a mortgage. A type of security instrument granted by a mortgagor (borrower) to a mortgagee (lender) which conveys title in trust to a third party (trustee) for the purpose of securing payment of a note. Under the terms of a deed of trust, the trustee is bound to reconvey title to the mortgagor upon satisfaction of the note, and is bound to sell the property and pay the debt in the event of default on the note. Deed of Trust Rider The document required by the lender to be recorded along with the security instrument for an ARM. Default Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage. Defective Title Title to a negotiable instrument obtained by fraud. Title to real property which lacks some of the elements necessary to transfer good title. Deficiency The difference between the amount of the mortgage indebtedness and any lesser amount recovered by the mortgagee (lender) from a foreclosure sale. Deficiency Judgement A court order requiring payment of the balance owed on a loan if the proceeds from a sale in foreclosure are insufficient to pay off the loan. Demand Feature A clause in a note which entitles the mortgagee (lender) to declare the note due a payable in full prior to its stated maturity date. Deposit A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. Depreciation A sum representing presumed loss in the value of a building or other improvements to a parcel of real estate resulting from age, physical wear, and economic or functional obsolescence. Devise A gift of real property by a will. Devisee One who receives real property through a will. Devisor One who gives real property through a will. Direct Endorsement A lender that can complete the processing and closing of a FHA loan without prior approval from FHA. Discount An amount paid to a lender to increase the yield on a mortgage. Often referred to as "discount points", one "point" is equal to one percent of the loan amount in question. Documentary Stamps A state tax required on deeds and mortgages when real estate title passes from one owner to another. The amount varies for each state. Down Payment A portion of a purchase price paid prior to closing the transaction. Earnest money may be part of or the entire down payment. Dragnet Clause A clause in a mortgage or deed of trust which places the real estate as security for existing debts between the parties. Due-On-Sale Clause A clause in a mortgage or deed of trust which allows the mortgagee (lender) to demand immediate full payment of the note in the event the title to the property is conveyed by the mortgagor (borrower) to another party without the prior written consent of the mortgagee. Duplex A single residential structure containing two living units. E Earnest Money A sum of money paid in trust by a prospective buyer in favor of the prospective seller to show that the buyer is in "earnest" intent to purchase the property. Easement A right, privilege or interest in real property that one individual has in lands belonging to another; a legal right to trespass; right-of-way authorizing access to or over land. Effective Age An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age. Effective Gross Income Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable. Elevation A scale architectural draws showing a particular profile of a structure. Eminent Domain A government right to acquire private property for public use by condemnation, and the payment of just compensation. Encroachment Unauthorized use of another person’s property. Encumbrance Unauthorized intrusion of a building or improvement onto another’s land. A claim attached to and binding real property. Endorsement A writing on a negotiable instrument, such as a check or a note, which assigns interest in such instrument to another party. A notation added to an instrument after execution to change or clarify its contents, such as an endorsement to a title insurance policy. Equal Credit Opportunity Act (ECOA) A federal law which prohibits lenders from denying credit to applicants on the basis of a borrower’s race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. Equity A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage. Equity Loan A loan made, generally as a second mortgage, based on and secured by an owner’s equity in real property. Escrow The holding of documents and/or funds by a disinterested third party such as a title insurance company, attorney or depository institution pending the settlement of a real estate transaction or mortgage loan, or pending the payment of real estate taxes and/or homeowner’s insurance on a parcel of real property. Escrow Account The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses. 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 Payment The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states. Estate The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death. Eviction The lawful expulsion of an occupant from real property. Exclusive Agency A listing given to one real estate broker as the sole agent for the sale of an owner’s property. Extended Lock An interest rate lock agreement having a term that is longer than the generally provided 30 or 45-day term, and which typically requires an up-front fee from the borrower. See "interest rate lock". F Fair Credit Reporting Act A consumer protection law that regulates the disclosure of consumer credit reports taken by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit report. 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 (FNMA) The Federal National Mortgage Association, a government sponsored agency chartered by Congress to facilitate capital formation for residential mortgage loans. It purchases sells and guarantees conventional, VA and FHA mortgages. FNMA stock is publicly traded on the New York Stock Exchange. Federal Deposit Insurance Corporation (FDIC) A federal agency that insures deposits of member banks and savings associations. Federal Home Loan Bank Provides liquidity to supervised financial service companies such as savings and loans and credit unions. The bank system has several districts. Federal Home Loan Board The board which overseas the Federal Home Loan Bank systems. Federal Housing Administration (FHA) An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA enables lenders to loan a very high percentage of the sales price. Federal Reserve Bank The regulatory agency for many commercial banks and bank holding companies. They set monetary policy for the country and provide liquidity for supervised financial institutions. Federal Trade Commission (FTC) A federal agency that investigates and eliminated unfair and deceptive trade practices. Federal Tax Lien A lien attached to property for nonpayment of a federal tax. Federal Tax Return The U.S. government’s method to identify individual and company’s annual tax responsibility. The tax returns identify the income and taxes. Federal Truth-In-Lending Act (TIL) A federal law which requires lenders to disclose various settlement costs associated with a loan, including an annual percentage rate. Fee Simple The greatest possible interest one can have in a parcel of real estate, including the right to dispose of the property or pass it on to one’s heirs. FHA Mortgage A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage. FICO Score An acronym referring to "Fair Isaac Credit" ratings, which grade consumer’s credit ratings with a numeric score. Fiduciary A person in a position of trust or responsibility with specific duties to act in the best interest of the client. Real estate brokers and mortgage brokers are fiduciaries. Financial Depositor Institutions Banks, savings and loans, or credit unions. Finder’s Fee A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower. First Mortgage A real estate loan which creates a primary lien against a parcel of real property. Fixed Rate Mortgage A loan that carries an unchangeable interest rate through its entire term. Fixture Personal property which, by virtue of being attached to real property, becomes a part of the real property. Floating Interest Rate The interest rate on a mortgage loan prior to its being "locked" or guaranteed by the lender. Flood Insurance Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas. Flood Zone An area designated by the federal government to be subject to flooding. Floor Plan Scale architectural drawing(s) showing details of a building’s floor design and layout. Forbearance The act on the part of a lender (mortgagee) of refraining from taking legal action despite a mortgage being in a state of default. Foreclosure The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt. Freddie Mac (FHLMC) The Federal Home Loan Mortgage Corporation, a quasi-governmental agency chartered to purchase residential loans from federally insured depository institutions and approved mortgage lenders. Full Disclosure Revealing all the known facts which may affect the decision of a buyer or tenant. 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. Functional Depreciation The loss of value to real estate due to improvements not providing the same level of usefulness as comparable properties. G Ginnie Mae (GNMA) A governmental agency chartered for the purpose of facilitating capital formation for FHA and VA mortgage loans. GNMA guarantees the timely principal and interest payments to investors. Good Faith Estimate A disclosure required pursuant to the Real Estate Settlement Procedures Act to be made by lenders to borrowers within three days of loan application. The good faith estimate provides an estimate of various settlement costs to be incurred by the borrower in association with the loan applied for. Graduated Payment Mortgage (GPM) A type of flexible-payment mortgage wherein payments begin at a low level and increase over time based on a predetermined schedule. Most GPMs provide for scheduled negative amortization. Grandfather Clause The clause in a law permitting the continuation of a use, business, etc., which was once permissible but, not permissible now, due to a change in the law. Grantee The person or entity to who interest is conveyed in a legally binding transaction. Grantor The person or entity conveying interest in a legally binding transaction. Gross Income Total income before expenses are deducted. Generally refers to an individual’s income before deductions for income taxes and social security, etc. >>Top of Page H Hazard Insurance Casualty (fire and other damage) insurance placed on improvements (structures) on a parcel of real property. Also referred to as "homeowners insurance". Holdback A portion of funds held in escrow for the completion or repair of some aspect of improvements on a parcel of real estate. Generally, a holdback will be required by a lender at an amount equal to one and one-half times the cost of the item in question. 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 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. Homeowners Association An organization of homeowners residing within a particular residential real estate development whose major purpose is to maintain and provide common areas and facilities in the development. Homeowners or Maintenance Fees Payments made by property owners of a condominium or a unit in a PUD to the homeowners’ association for expenses incurred in upkeep of the common areas. Homestead Term used to describe three separate but related situations: (1) a tax exemption, (2) a tract of land limited in size and (3) a statutory condition designed to protect the interests of a spouse and lineal descendants. Housing Ratio The ratio of the monthly housing payment in total (PITI – Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio. Housing and Urban Development (HUD) The federal government agency that oversees FHA. HUD 1 A closing document required by HUD that itemizes the settlement costs of a loan. The closing agent generally prepares the document and the buyer receives it shortly after the loan is closed. Hypothecate To pledge property as security for a loan without giving up title or possession. I Income Statement A component of financial statements which sets forth the income, expenses, and net profit or loss of an individual or business entity over some specified period of time. Also referred to as a "Profit and Loss Statement". Index A published interest rate to which the interest rate on an adjustable rate mortgage (ARM) is tied. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported. Installment The regular periodic payment that a borrower agrees to make to a lender. Insured Mortgage A mortgage insured against loss to the mortgagee in the event of default and failure of the mortgaged property to satisfy the balance owing plus cost of foreclosure. Interest The price paid for the use of borrowed money, usually expressed as an annual percentage. Interest Payment Notification (1098) A federal tax form that lenders use at year end to notify borrowers of the interest that was paid on their mortgage over the last year. Interest Rate Lock An agreement made by a lender guaranteeing a borrower who has applied for a loan specific interest rate provided the loan closes within a specified period of time. Interim Construction Financing The financing provided from the time a construction project is commenced until its completion or the settlement of a permanent loan. See "construction loan". Investment Property A property that is not occupied by the owner and in most cases generated income for the owner. J Joint and Several A liability which allows the creditor to sue any one of the debtors or sue all together. Joint Tenancy An undivided interest in property, taken by two or more joint tenants. The interest must equal, accruing under the same conveyance, and beginning at the same time. Upon death of a joint tenant the interest passes to the surviving joint tenants, rather than to the heirs of the deceased. Judgement A lien upon a parcel of real estate resulting from a court’s decree in a legal action. Jumbo Mortgage Loan Mortgage loans over the current conforming amount of $300,700. Loan amounts over this amount are considered non-conforming or jumbo mortgages. Junior Mortgage A mortgage subordinate to another mortgage. L Land Contract Installment plan for buying a house. It is used as an alternate to obtaining a loan from a traditional source such as a mortgage banker or savings and loan. Late Charge An additional charge paid by a borrower as a penalty for failure to pay a regular installment on a loan when due. Lease An agreement that does not convey ownership but does convey possession and use for a period of time and for compensation. Lease with Option to Purchase A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period. Legal Description A property description that is a written identification of a specific parcel of land and its location without additional oral testimony. Recorded documents generally require a legal description. Lender A general term encompassing all mortgages, and beneficiaries under deeds of trusts. Lenders Instructions A document that lenders prepare for the closing agent that outlines the requirements for loan closing. Lessee A tenant or leaseholder; party given a lease. Lessor The landlord or owner; party granting a lease. Letter of Intent A formal method of stating that a prospective developer, buyer or lessee, is interested in property. Lien A claim on property for payment of some obligation or debt. Lien Affidavit A sworn, written statement made by an individual or entity regarding presence of liens on a particular parcel of real estate. Lien Waiver A written document in which the grantor relinquishes the right to place or maintain a lien on a specific parcel of real estate. Life Estate An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party. Lis Pendens A notice that litigation is pending on a property. Listing Agreement Agreement between a property owner and a real estate owner, authorizing the broker to find a buyer for the property. If the sale is consummated, the listing broker will be paid a fee. Loan Officer A person that helps borrowers through the loan selection, processing and closing of a mortgage loan. Loan Servicing The act of collecting and applying regular payments, paying taxes and insurance, and performing collection and foreclosure activities as they relate to mortgage loans. Loan Submission The act of an originating lender presenting a completely documented mortgage loan application file to an investor for the purpose of obtaining the investor’s commitment to purchase the loan. Loan to Value Ratio (LTV) The ratio of the amount of your loan to the appraised value of the home. The lower the loan to value the more favorable the terms and conditions of the programs offered by lenders. Loss Payee Clause An insurance policy provision for payment of a claim to a person or entity other than the named insured in the policy. Lot Measured parcels of land having fixed boundaries as shown on the recorded plat. >>Top of Page M Margin The set percentage a lender adds to the index to determine the current interest rate on an adjustable-rate mortgage (ARM). Market Value The most likely price a given property will bring if widely exposed on the market, assuming a fully informed buyer and seller. Marketable Title Title that is free of liens, clouds on title and legal defects. Mechanics Lien A lien created by statute for the purpose of securing priority of payment for the value of work performed and materials furnished in the construction or repair of improvements to real property. The lien is attached to the land as well as the improvements. Modular Home A factory assembled residence built in units or sections, transported to a permanent site and erected on a foundation. The term excludes mobile homes. Mortgage A lien or claim against real property given as security for a loan. Mortgage-Backed Security Bond-type investment security representing undivided interest in a pool of mortgages or deeds of trust. Mortgage Banker A firm that originates mortgages for sale to investors in the secondary market. Mortgage Broker A professional that helps consumers through the loan selection, processing, and closing of a mortgage loan. Most mortgage brokers have access to a wide range of mortgage products through many mortgage lenders. Mortgage Disability Insurance A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time. Mortgage Insurance (MI) Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by mortgage default. Usually required for loans with a LTV of 80.01% or higher. Mortgagee The person or company who receives the mortgage as a pledge for repayment of the loan. Also known as the mortgage lender. Mortgagee Clause An insurance policy provision for payment of a claim to the mortgagee (lender) on a property rather than the named insured (owner) in the policy. Mortgage Note Legal documents obligating a borrower to repay a loan at a stated interest rate during a specified term. The note is secured by a mortgage. Mortgage Warehousing A funding facility that is used by mortgage companies to fund loans which are then sold to an investor shortly thereafter. The mortgage notes are used as collateral for this interim financing. Mortgagor The mortgage borrower who gives the mortgage as a pledge to repay. N Negative Amortization A loan payment schedule in which the outstanding principal balance goes up, rather than down, because the payments do not cover the full amount of interest due. The unpaid interest is added to the balance. Negative amortization can occur when an ARM has a payment cap that results if monthly payments are not high enough to cover the interest due. Negative Cash Flow A situation in which expenditures required to maintain an investment exceed income received from the investment. Net Income Profit from property or business after expenses have been deducted; effective gross income less operating expenses. Net Worth The value of all assets minus all liabilities. O Office of Comptroller Currency A federal regulatory agency that oversees some commercial banks. Office of Thrift Supervision A federal regulatory agency that oversees savings and loans. Open End Mortgage A mortgage permitting additional advances under the same mortgage, upon mutual agreement by the lender and borrower. Option A right or privilege to purchase or lease real property at a specified price during a designated period based on a sufficient consideration. 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. Over-Improvement A structure or improvement that is inappropriately too costly versus the market value of its underlying real property. Owner Financing A property purchase transaction in which the property seller provides all or part of the financing. Owner of Record The owner of property that has a deed indicating his ownership that has been recorded at the local municipality. P Package Mortgage Mortgage covering both real and personal property. Payment Cap A provision in some adjustable-rate mortgages (ARMs) which limits the amount by which the payment may increase, regardless of increases in the interest rate. Payment caps can lead to negative amortization. Partnership A legal business entity in which two or more persons or business entities join capital, expertise and/or labor in a proportionate manner. Profits and losses are passed through to the partners. The partnership pays no income taxes. Permanent Financing A mortgage loan placed on a newly built property after completion of construction. Pest Infestation Report A report prepared by a qualified individual or company that determines the extent of any insect or other pest infestation which has damaged or poses damage to a parcel of real property. Physical Depreciation The losses of value to property due to wear and tear, disintegration or action of the elements. PITI The components of a monthly mortgage payment-Principal, Interest, Taxes, and Insurance. Planned Unit Development (PUD) A subdivision of five or more individually owned lots with one or more other parcels owned common or with reciprocal rights in one or more other parcels. Plat A map or chart of a lot, subdivision or community, showing boundary lines, buildings and easements. Portfolio Loan A loan made by a bank, savings and loan, or credit union that is retained as an investment and not sold in the secondary market to investors. Power of Attorney A legal document which authorized one individual or entity to act on behalf of another. Prepaid Interest The interest charged to borrowers at loan closing to pay for the cost of borrowing for a partial month. Covers the period of time between the closing date and the date scheduled interest begins to accrue. Prepaids Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc. Prepayment Full payment of the principal before the due date, occurs when a property is sold or the borrower refinances the existing loan. Prepayment Penalty A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule. Pre-qualification The process of providing an informal, non-binding opinion of how much money a prospective borrower will be eligible to borrow. Primary Mortgage Market The process of obtaining a real estate loan, including the consumer’s completion of a loan application, validation of the credit and property information, loan underwriting by the lender and closing of a mortgage loan. Primary Residence Considered the permanent location of residency. Principal Amount of debt, not including interest. The face value of a note or mortgage. Private Mortgage Insurance (PMI) Insurance provided by nongovernment insurers that protect lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with LTV percentages greater than 80%. Processing The preparation of a mortgage loan application and supporting documentation for consideration by a lender or mortgage insurer. Property Tax A tax levied by the local municipality or county on real and personal property. Property Tax Prorations Expenses such as taxes that are divided to the date of settlements between buyer and seller at closing. Interest is sometimes prorated when a mortgage loan is closed. Purchase Money Mortgage A mortgage obtained by the buyer to provide a portion of the funds needed to purchase real property. Q Qualification Ratios Ratios applied by lenders to determine the mortgage amount a borrower qualifies for. The housing expense-to-income ratio is the PITI from the proposed mortgage loan divided by the total gross income. The total obligations-to-income ratio is the PITI plus all other monthly recurring payments divided by total gross income. Quit-Claim Deed A deed which, when granted, relinquishes all interest, title or claim to a property without representing the validity of or making any warranties with regard to the title to the property. >>Top of Page R Real Estate Land, including the air above and the earth below, plus any permanent improvements affecting the utility of the land; real property; property that is not personal property. Real Estate Settlement Procedures Act (RESPA) A consumer protection law originally enacted in 1974 which, among other things, requires advance disclosure to borrowers regarding mortgage closing costs. Reconveyance The transfer of title to real estate from one person or entity to the immediate preceding owner. It is used, for example, when a debt is paid in full under a deed of trust or mortgage. Recording The noting in a public registrar’s office of the details of a properly executed legal document, such as a mortgage or deed, thereby making it a part of the public record. Recourse The right of the holder of a note secured by a mortgage or deed of trust to look personally to the borrower or endorser for payment. Redemption To repurchase, to buy back, to recover property used as security for a mortgage by paying the debt. Refinance The act of placing financing on a parcel of real property subsequent to the date the property was purchased. This is often done to retire a current mortgage for a new one with a lower interest rate, or to liquidate part of an owner’s equity in the property. Reissue Rate A charge for title insurance policy if a previous policy on the same property was issued within a specified period. Reissue is less than the original charge. REIT (Real Estate Investment Trusts) A method of investing real estate in a group, with certain tax advantages. Release An instrument releasing property from the lien of the mortgage, judgment, etc. Replacement Cost The cost of replacing an existing structure with one of equivalent value and utility. Residential Mortgage Credit Report A report requested by your lender that utilized information from at least two of the three national credit bureaus and information provided on your loan application. Reverse Mortgage A special program for the elderly that provides income until death. Payments are made by increases in the principal amount of the loan. Right of Recission A right extended to borrowers pursuant to law that permits them to cancel a mortgage refinance transaction within three days from the date the settlement documents were executed. Right of Survivorship Applies to co-ownership of property under a joint tenancy wherein, if one owner dies, the individual estate in the property passes to the surviving owner(s). S Satisfaction of Mortgage A recorded instrument granted by a lender to evidence full payment for a mortgage debt. Second Mortgage A mortgage that extends rights to the lender which are subordinate or inferior to the rights extended to the first mortgage holder. Secondary Mortgage Market A market system in which investors purchase and sell existing mortgages and mortgage-backed securities and which facilitates capital formation for funding of mortgages. Security Real or personal property pledged by a borrower as additional protection for the lender’s interest. Seller’s Broker Agent who takes the seller as a client, is legally obligated to a set of fiduciary duties, and is required to put the seller’s interests above all others. Settlement Cost Guide This booklet gives an overview of the lending process and is required by HUD. It is provided to consumers after the loan application is completed. Settlement Statement A statement prepared by broker, escrow, or lender, giving a complete breakdown of the costs involved in a real estate transaction. Specific Performance Lawsuit requesting that a contract be exactly carried out, usually asking that the seller be ordered to convey the property as previously agreed. Stated Income Some loan products require only that applicants "state" the source of their income without supporting documentation such as tax returns or paystubs. Subject Property The real property under discussion or appraisal. Survey The procedure used to measure and describe a specific tract of real property for the purpose of determining exact boundaries and the area contained therein. Subordination The act of a party acknowledging, by written recorded instrument, that a mortgage debt or other interest is inferior to the interest of another in the same property. T Tax Sale Public sale of property at auction by governmental authority, after a period on nonpayment of property taxes. Tenancy by the Entirety A form of ownership by husband and wife whereby each owns the entire property. In event of death of one, the survivor owns the property without probate. Temporary Buydown A sum of money paid upon the closing of a mortgage loan to reduce the interest rate temporarily on the mortgage. Tenancy A holding of real estate under any of various rights of title. Tenancy in Common The type of title created in real estate when such title is granted to two or more persons or entities without the express creation of a joint tenancy, and without the right of survivorship. Title The group of rights that represent ownership of real property and the quality of the estate owned; evidence of ownership of property; legal title. Title Company A company that specialized in title searches and provides title insurance policies. Title Insurance Policy An insurance policy that protects purchasers and lenders against losses arising from defects in the title to real 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. >>Top of Page U Underwriting The process of evaluating a loan application and its supporting documentation to determine the risk involved to the lender making the loan. V VA Mortgage A mortgage loan that is guaranteed by the Veterans Administration. Vendee The buyer or purchaser of real property under an agreement of sale. Vendor The seller of real property in an agreement of sale. Veterans Administration (VA) A government agency guaranteeing mortgage loan with no down payment to qualified veterans. Voluntary Lien A claim imposed against real property with the consent of the owner (mortgage, vendor’s lien). W Warranty Deed A type of deed containing the strongest and most comprehensive promises of further assurance possible for the grantor (seller) to convey to a grantee (buyer). Wraparound Mortgage A financing technique in which the payment of the existing mortgage is continued (by the seller) and a new, higher interest rate mortgage, which is larger than the existing mortgage, is paid by the buyer/borrower. W2 Form Income tax form that is provided by employers to employees that states the income and taxes paid in a calendar year. >>Top of Page | 
