Our mortgage glossary defines various terms and phrases used within the mortgage industry.
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- The voluntary relinquishment of rights of ownership or another interest (such as
an easement) by failure to use the property, coupled with intent to abandon.
- A reduction or decrease which usually applies to a decrease of assessed valuation
of ad valorem taxes (taxes based on the property value) after the assessment.
- Abstract of Judgment
- A summary of money judgment obtained in court (in some states when the summary or
abstract is recorded in the county recorder’s office the judgment becomes a lien
on the debtor’s property, either presently owned or after-acquired.)
- Abstract of Title
- A summary prepared by a licensed abstractor of all documents recorded in the public
records of the political subdivision where the land is located. An attorney or other
experienced title examiner reviews an abstract in some states or areas. Virtually
every abstractor today provides actual copies of the records rather than an abstract
of each document.
- Acceleration Clause
- A provision in a mortgage that gives the lender the right to demand payment of the
entire principal balance if a monthly payment is missed.
- Accommodation Recording
- Recording of instruments with the county recorder by a title company as a convenience
to a customer without assumption of responsibility for correctness or validity.
- Accrual Rate
- The stated annual rate at which interest is calculated. On an adjustable-rate mortgage
(ARM), the accrual rate is based on a combination of an independent market index,
which fluctuates, plus a margin, which is fixed and is established by the lender.
The accrual rate is also called the "note rate," the "coupon rate" or the "contract
- Accrued Interest
- The interest that has accumulated on the loan over the time elapsed since the borrower's
- A formal declaration before a duly authorized officer (such as a notary public)
by a person who has executed an instrument that such execution is his own act and
deed. An acknowledgment is necessary to entitle an instrument (with certain specific
exceptions) to be recorded, to impart constructive notice of its contents and to
entitle the instrument to be used as evidence without further proof. The certificate
of acknowledgment is attached to the instrument or incorporated therein.
- Acquisition Cost
- The lesser of the appraised value or, the sales price plus allowable non-recurring
closing costs, minus any required adjustments.
- Something added, for example, a list or other material added to a document, letter,
contractual agreement, etc.
- Additional Principal Payment
- A payment, made by the borrower, in excess of the scheduled monthly payment which
is used to reduce the remaining balance on the loan.
- Adjustable Rate Mortgage (ARM)
- A general term for any mortgage in which the interest rate and, generally, the payments
change over the life of the loan. The interest rate is adjusted to match the rise
or fall of a pre-selected interest rate index and the borrower’s regular payments
will increase or decrease accordingly. Different types of adjustable-rate mortgages
(ARM’s) have different frequencies for these adjustments. Some ARM’s have limits
on payment and interest rate changes and the maximum interest rate over the life
of the loan. To the borrower’s advantage, the initial rate of an ARM is usually
low permitting the purchase of real estate that would otherwise be unaffordable,
but there is a risk of higher future payments.
- The amount added to or subtracted from the sales price of comparable properties
to obtain an adjusted sales price that more accurately reflects the subject property’s
- A person appointed by the probate court to carry out the administration of a decedent’s
estate when the decedent has left no will. If a woman is appointed, she is called
- Adverse Possession
- A process of acquiring title to real property be possession for a certain (statutory)
period of time, in addition to fulfilling other conditions.
- A written statement or declaration, sworn to before an officer who has authority
to administer an oath (usually a notary).
- One who has authorization, either expressed or implied, to act for or represent
another party, usually in business matters, such as issuing title insurance policies
on behalf of a title insurer for a portion of the premium.
- Agreement of Sale
- A written contract entered into between the seller (vendor) and buyer (vendee) for
the sale of real property on an installment or deferred payment plan. It is also
known as an agreement to convey, a long form security agreement, or a real estate
- Alimony is an allowance paid by one spouse to the other after a legal separation
- ALTA (American Land Title Association)
- An organization composed of title insurance firms, which sets standards for the
industry, including title insurance policy forms used on a national basis.
- Alternative Documentation
- Allows the lender to verify income, employment and assets by using documentation
provided by the borrower(s) in place of a Verification of Employment and a Verification
- A change to alter, add to, or correct part of an agreement without changing the
principal idea or essence.
- A feature that enhances a property’s value (examples: off-street reserved parking
within a condominium community, proximity of public transportation, tennis courts,
or a swimming pool).
- Repayment of a mortgage debt with equal periodic payments composed of varying amounts
of both principal and interest, calculated to retire the obligation at the end of
a fixed period of time.
- Amortization Schedule
- A table showing the amounts of principal and interest due with each periodic payment
and the unpaid balance of the loan after each payment is made.
- Annual Percentage Rate (APR)
- The true rate of interest charged for the loan. It includes the loans quoted interest
rate as well as finance and service charges. APR is regulated by the Truth-in-Lending
- An amount paid at regular intervals for a set period of time. Mortgage payments
are a form of an annuity paid to the lender.
- A prospective borrower who has completed an application.
- A report made by a licensed individual setting forth an opinion or estimate of the
value of the property.
- Appraised Value
- An opinion of value determined by a licensed appraiser, based upon knowledge, experience,
and a study of pertinent data.
- A licensed individual qualified by education, training, and experience to estimate
the value of real and personal property. The estimate is based on a process in which
the appraiser judges the facts discovered in a review of the property and pertinent
- An increase in the value of a property due to changes in market conditions or other
causes (the opposite of depreciation).
- Conditional loan approval is based on written (as provided on the application and
other documentation) and verbal information provided to Provident Funding. The conditional
approval is subject to the verification and/or receipt of additional information.
Once all closing conditions and lender requirements are satisfied, the loan will
receive final approval.
- Anything concrete or abstract attached to the land and thus part of the property,
such as a barn, garage, or easement.
- ARM Disclosure
- A disclosure that must be given to all applicants when they apply for an Adjustable
- The total accumulated delinquent principal, interest, taxes and insurance (PITI)
amount that a borrower owes a lender.
- Assessed Value
- The valuation of a property by a public tax assessor for purposes of taxation.
- Tax on real property either by an annual property tax based on current fair market
value or via special assessments for sewers, public improvements, etc.
- 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, and so on).
- Assignment of Rents
- A legal document, sometimes included in the mortgage that assigns all rents and
income from a property to the mortgagee. If properly invoked after default, the
mortgagee has a right to assume management of the property and collection of the
rents from the subject property.
- Assumable Mortgage
- A mortgage that can be taken over by the new buyer when a home is sold.
- A means by which the title/mortgage may be transferred to another party with or
without release of liability on the note.
- 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.
- Attorney In Fact
- One who holds a power of attorney from another to execute documents on behalf of
the grantor of the power.
- Backend Ratio
- Also known as a debt-to-income ratio which is your total monthly obligations (debt)
divided by your gross monthly income. Your monthly obligations include such items
as your mortgage payment, property taxes, insurance premiums, installment loans,
and revolving debt (credit cards). This ratio is used to determine your capacity
to repay the mortgage and all other debts. Your debt-to-income ratio is a crucial
calculation in determining the loan amount for which you can qualify.
- Balloon Mortgage
- A mortgage with periodic installments of principal and interest that does not fully
amortize the loan. The balance of the mortgage is due in a lump sum at a specified
date in the future, usually at the end of the balloon term, prior to the full amortization
of the mortgage.
- Balloon Payment
- The unpaid,principal amount of a mortgageloan, which is due on a specified date
and paid in a lump sum.
- A person, firm, or corporation who, through a court proceeding, is relieved from
the payment of all debts after the surrender of all assets to a court appointed
trustee for the protection from creditors. Bankruptcy may be declared under one
of several chapters of the federal bankruptcy code: Chapter 7, liquidation of the
debtor’s assets; Chapter 11, reorganization of bankrupt businesses; or Chapter 13,
which covers work-outs of debts by individuals.
- Basis Point
- One one-hundredth of one percent (0.01%). Used to describe changes in yield on debt
instruments, including mortgages.
- Before-Tax Income
- Income before taxes are deducted.
- The person designated to receive the income from a trust, estate, or deed of trust.
- Binder (Insurance)
- A written evidence of temporary homeowners or title insurance coverage that only
runs for a limited time and must be replaced by a permanent policy.
- Binder (Real Estate)
- A preliminary agreement between a buyer and seller in which the basic price and
terms of a real estate contract are included. The final contract is then prepared
and signed by both parties. In some instances, the term refers to the actual sales
- Bona Fide Purchaser
- One who buys property in good faith, for fair value, and without notice of any adverse
claim or right of third parties.
- A mortgagor who receives funds in the form of a loan with the obligation of repaying
the loan in full with interest, if applicable.
- A person who, for a commission or fee, brings parties together and assists in negotiating
contracts between them.
- One who assembles materials in order to fabricate, erect or construct a building
or, one who oversees building operations.
- Building Code
- The local regulations that control design, construction, and materials used in construction.
Building codes are usually based on safety and health standards.
- Built Ins
- Cabinets, ranges and ovens, or similar features that are part of the structure.
- Money advanced by an individual, builder, seller, etc. to reduce the monthly payments
for a home mortgage either during the entire term or for an initial period of years.
- A limit placed on payments, interest rates and/or the balance of a loan. Caps can
limit increases by either a dollar amount or a percentage.
- The wealth accumulated (money or property) or used by a person or business. The
net worth of a business as defined by the amount that its assets exceed its liabilities.
- Cash Reserves
- The amount of liquid assets the borrower has remaining after the mortgage loan transaction
- Cash-Out Refinance
- A refinance transaction in which the amount of money received from the new loan
exceeds the total amount of money needed to repay the existing first mortgage, closing
costs, points, and the amount required to satisfy any outstanding subordinate mortgage
lien that was not used in full to purchase the subject property. In other words,
a refinance transaction in which the borrower receives additional cash that can
be used for any purpose.
- Certificate of Deposit (CD)
- A document written by a bank or other financial institution that is evidence of
a deposit, with the issuer’s promise to return the deposit plus earnings at a specified
interest rate within a specified time period.
- Certificate of Title
- A document that assures the buyer that the person selling the property is indeed
the legal owner of the property and that no one else has any legal claim to the
property. This certificate does not protect against loss if a hidden claim emerges
after the purchase of a property, only a title insurance policy can do that.
- 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.
- An article of personal property that is not revealed in the mortgage contract and
that does not add to the property’s value.
- Clear Title
- A title that is free of liens or legal questions as to ownership of the property.
- The conclusion of a transaction. In real estate, closing includes the delivery of
a deed, financial adjustments, the signing of notes, and the disbursement of funds
necessary to consummate the sale or the loan transaction. Also, called "settlement."
- Closing Costs
- Fees paid by borrowers and sellers in the process of closing a mortgage loan which
normally include: an origination fee, discount points, a title insurance policy,
a survey, attorney’s fee, and such prepaid items as taxes and insurance escrow payments.
- Closing Disclosure
- Provides the final costs and loan terms for the loan closing.
- Closing Statement
- A financial disclosure giving an account of all funds received and expected at the
closing, including the escrow deposits for taxes, hazard insurance, and mortgage
insurance for the escrow accounts.
- Cloud on Title
- An outstanding claim/lien or restriction on the property that, if valid, affects
the owner’s clear ownership rights to the property. A cloud can be removed from
the title by a court action, a release or a deed.
- A party who signs the mortgage note along with the borrower and who shares the title
to, and the obligation to pay for, the property with the borrower. Also called "co-mortgagor."
- Property pledged as security for a debt, such as real estate secures for a mortgage.
- An agent’s compensation (fee) for negotiating a real estate or loan transaction,
often expressed as a percentage of the sales price or mortgage amount.
- An agreement, often in writing, between a lender and a borrower, to loan money at
a future date, subject to specified conditions. In secondary marketing, an agreement,
in writing, between a lender and an investor to buy and sell mortgages under specific
- Commitment Fee
- Any fee paid by a potential borrower to a potential lender for the lender’s promise
to loan money at a specified date in the future. The lender may or may not expect
to fund the commitment. In secondary marketing, a fee paid by the loan seller to
the investor in return for the investor’s promise to purchase a loan or package
of loans at a future date.
- Common Area
- Land or improvements on land that is designated for common use and enjoyment by
all occupants, tenants, or owners.
- Community Property
- Property acquired by husband, wife or both during marriage which gives each spouse
an interest in the property whether each appears in title or not.
- Comparable Sales
- Properties used for comparative purposes in the appraisal process that have similar
characteristics to the subject property. Commonly called "comps."
- The determination that a building is not fit for use or is dangerous and must be
destroyed; the taking of private property by the government for a public use, as
for a street or a storm drain, upon making just compensation to the owner. This
right or power of government to take property for a necessary public use is called
- Conditional Sales Contract
- A contract for the sale of a property in which transfer of title to the buyer is
contingent on fulfillment of certain conditions/contingencies.
- A form of property ownership whereby the purchaser receives title to the unit and
a proportionate interest in common areas. The property ownership is only for the
air space within the unit that is purchased, as the Homeowners Association owns
- Condominium Conversion
- Changing the ownership of an existing building (usually a rental project) to the
condominium form of ownership.
- A mortgage market intermediary that consistently buys mortgage loans from retail
originators on a flow or bulk basis. A conduit will repackage these loans, typically
into security form, and then sell the security to raise cash for additional purchases.
- A person appointed by the court to care for the person and/or property of an incompetent
adult or an adult unable to care for their person or property because of health.
- Constant Renewal
- An insurance renewal where the premium amount paid is based on the original amount
of the loan, not on the outstanding balance.
- Construction Loan
- A short-term, interim loan for financing the cost of construction. The lender makes
payments to the builder at periodic intervals as the work progresses.
- Construction Loan Draw
- The periodic/partial disbursement of the construction loan, based on the schedule
of payments in the loan agreement.
- Contract of Sale
- A contract between a purchaser and a seller of real property to convey a title after
certain conditions have been met and payments have been made.
- A person or company who agrees to furnish materials and/or labor to do work for
an agreed-upon price.
- Conventional Loan
- A mortgage loan not insured by FHA or guaranteed by the VA. No governmental agency
approval is required of the lender, borrower or property. It is called “conventional”
because it conforms to accepted standards, modified within legal bounds by mutual
consent of the borrower and the lender. Also called "conventional residential mortgage."
- The act of transferring title to real property from one party to another.
- An instrument in writing such as a deed, or trust deed, used to transferor convey
title to property from one person to another.
- A form of multiple ownership of real estate in which a corporation or business trust
entity holds title to a property and grants the occupancy rights of particular apartments
or units to shareholders by means of proprietary leases or similar arrangements.
- An entity authorized by law and established by a group of people, the stockholders,
which is endowed with certain rights, privileges and duties similar to an individual.
- A mortgage banker who services mortgage loans as an agent for either the owner of
the mortgage or an investor. Also applies to the mortgage banker in the role of
originator of mortgage loans for an investor (Mortgage Loan Correspondent).
- One who agrees to assume a debt obligation if the principal borrower defaults on
the mortgage payments. Co-signer assumes only personal liability and has no ownership
interest in the property. His or her income and obligations are used in the underwriting
process to reinforce the credit of the principal borrower.
- Cost Approach
- In an appraisal, a method of establishing the market value of a property by considering
how much the subject property would cost if it were to be built today.
- Coupon _Rate
- The annual interest rate shown on the face of a mortgage note.
- (1) A formal agreement or contract between two parties in which one party gives
the other certain promises and assurances, such as the covenant of warranty in a
(2) Agreements or promises contained in deeds and other instruments for performance
or nonperformance of certain acts, or use or nonuse of property in a certain manner.
- Covenants, Conditions and Restrictions
- Commonly called "CC & R’s" the term usually refers to a written recorded declaration
which sets forth certain covenants, conditions, restrictions, rules or regulations
established by a sub-divider or other landowner to create uniformity of buildings
and use within tracts of land or groups of lots. The restrictions also can be established
by deed. CC & R’s are sometimes referred to as private zoning.
- A person to whom a debt is owed by another person who is the "debtor."
- 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 Rating
- A rating given to a person or company to establish creditworthiness, based on present
financial condition, experience, and past credit history.
- Credit Report
- A report to a prospective lender on the credit standing of a prospective borrower,
used to help determine creditworthiness.
- A small excess amount of funds, which lenders may require to be kept in an escrow
- A sum of money due by certain and express agreement.
- Debt/Equity Ratio
- A ratio between the amount of capital borrowed and the amount of capital invested
out-of-pocket or obtained through the sale of common stock; also called the leverage
- One who owes a debt.
- A written document by which an estate or interest in real property is transferred
from one person to another. The person who transfers the interest is called the
"grantor." The one who acquires the interest is called the "grantee." Examples of
deeds are grant deeds, administrators’ deeds, executors’ deeds, quitclaim deeds,
etc. The deed to use depends on the language of the deed, the legal capacity of
the grantor and other circumstances.
- Deed-in Lieu
- A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.
Also called a "voluntary conveyance."
- Deed of Trust
- A written document by which the title to land is conveyed as security for the repayment
of a loan or other obligation. It is a form of mortgage. The landowner or debtor
is called the "trustor." The party to whom the legal title is conveyed (and who
may be called on to conduct a sale thereof if the loan is not paid) is the "trustee."
The lender is the "beneficiary." When the loan is paid off, the trustee is asked
by the beneficiary to issue a "recon" or reconveyance. This reconveyance corresponds
to the release that the holder of a mortgage executes when the mortgage is paid
- Deed Restrictions
- Limitations in the deed to a property that dictate certain uses that may or not
be made of the property.
- A breach or nonperformance of the terms of a note or covenants of mortgage.
- A blemish, imperfection or deficiency. A defective title is one that is irregular
- Defective Title
- (1) Title to a negotiable instrument obtained by fraud.
(2) Title to real property, which lacks some of the elements necessary to transfer
- Deferred Interest
- With ARM’s, if monthly payments do not cover the accrued interest, the interest
left unpaid is deferred to later years by adding it to the unpaid principal balance.
- Deficiency Judgment
- In the event that the sale of a foreclosed property does not provide an amount of
money sufficient to cover the balance due on the loan, a judgment may be sought
against the borrower, who is personally liable for the difference. If the court
grants the deficiency, this judgment can be collected from the borrower from other
property, other assets owned or by garnishment.
- A loan payment that has not been received 30 days after its due date.
- Demand Letter
- A notice issued to a borrower, warning of the imminent danger of foreclosure.
- Demand Note
- A note having no date for repayment, but due on demand of the lender.
- Money given by the buyer with an offer to purchase. Shows good faith. Also called
- A lowering of value based on physical deterioration or functional or economic obsolescence.
- Debt of Coverage
- The percentage of the loan balance that is protected by mortgage insurance.
- A person or entity that prepares undeveloped lands for building sites and sometimes
builds on the sites.
- Payments made during the course of an escrow or at closing.
- Discount Points
- Amounts paid to the lender (usually by the seller) at the time of origination of
a loan, to account for the difference between the market interest rate and the lower
rate of the Note.
- Down Payment
- The part of the purchase price of a property that the buyer pays in cash and does
not finance with a mortgage.
- Due-On-Sale Clause
- A clause allowing the lender to demand payment of the entire loan balance upon sale
or other transfer of title by the borrower to a third party.
- Two separate housing units that are contained in a single structure.
- Dwelling Unit
- The living quarters occupied, or intended for occupancy, by a household.
- Earnest Money
- A sum of money given to bind a sale of real estate, or assure payment or an advance
of funds in the processing of a loan, a deposit.
- The right to the limited use or enjoyment of land held by another. Also an interest
in land to enable sewer or other utility lines to be laid, or to allow for access
to a property.
- Economic Obsolescence
- The effect of external requirements or conditions that have a negative influence
on the value of the property as it now stands.
- Eminent Domain
- The right of a government to take private property for public use upon payment of
fair market value. Eminent domain is the basis for condemnation proceedings.
- The presence of an improvement such as a building, a wall, a fence or other fixture
which overlaps onto the property of an adjoining owner.
- Anything that affects or limits the fee simple title to a property, such as mortgages,
leases, easements or restrictions.
- (1) The signature on the back of a check, note or other negotiable instrument.
(2) An addition made to a document, such as a title policy, in order to alter or
- A person who signs ownership interest over to another party. Contrast with co-maker.
- Equal Credit Opportunity Act (Commonly known as ECOA)
- Federal law to prohibit discrimination on the basis of age, race, color, religion,
national origin, sex, marital status or receipt of public assistance. Also called
- Equitable Right of Redemption
- During a foreclosure proceeding, a defaulted borrower’s right to redeem his property,
by full payment of the mortgage debt, up to the date of the foreclosure sale.
- The difference between a property’s fair market value and current indebtedness,
usually referred to as the owner’s interest.
- Equity Erosion
- A loss of equity due to negative amortization, a decline in property value, or a
combination of both.
- Equity Mortgage
- A debt secured by a lien against real estate that usually is subordinate to a previous
mortgage and is based or given on the amount of equity one has in real estate after
deducting the previous mortgage.
- Equity Refinance
- The borrower obtains a new loan, taking cash out of the equity that has built up
in the original loan, resulting in a larger loan balance than the original loan.
Also called "cash take-out refinance."
- (1) A transaction in which a third party, acting as the agent for the buyer and
seller, carries out instructions of both and assumes the responsibilities of handling
all the paperwork and disbursement of funds in a transfer of title and mortgage
loan transaction. Escrow may also be established for any purpose, at any time, as,
for example, in the administration of funds set aside to effect a "buydown" agreement
among seller, buyer, and lender.
(2) Funds included in the monthly mortgage payment to accumulate amounts necessary
to pay property taxes, insurance premiums, etc., that are held in escrow, but the
lender often acts as the escrow agent, especially if the lender is a depository
- Escrow Account
- The segregated trust account in which escrow funds are held.
- Escrow Agent
- The person or organization having a fiduciary responsibility to both the buyer and
the seller, or other parties to see that the terms of the purchase/sale, loan, or
other agreements are carried out.
- Escrow Agreement
- An agreement to allocate funds to be set-aside in a special account to guarantee
payments that occur after settlement.
- 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
- That portion of a mortgagor’s monthly payments held by the lender or servicer to
pay taxes, hazard insurance, mortgage insurance, lease payments, and other items
as they become due. Known as impounds or reserves in some States.
- The interest or nature of the interest which one has in property, such as a life
estate, the estate of a deceased, real estate, etc.
- The lawful expulsion of an occupant from real property.
- To complete; to make; to perform; to do; to follow out; to execute a deed; to make
a deed, including especially the signing; to seal and deliver; to execute a contract
is to perform a contract; to follow out to the end; to complete.
- A person appointed in a will and affirmed by the probate court to cause a distribution
of the decedent’s estate in accordance with the will. If a woman is appointed, she
is referred to as the "executrix."
- Fair Market Value
- The price at which a property is transferred between a willing buyer and a willing
seller, each of whom has a reasonable knowledge of all pertinent facts and neither
being under any compulsion to buy or sell.
- Federal Home Loan Mortgage Corporation (Commonly known as Freddie Mac)
- A private stockholder-owned corporation authorized by Congress. It sells participation
certificates (pass-through mortgage-backed securities) secured by pools of conventional
- Federal Housing Administration (Commonly known as the FHA)
- A government mortgage insurance agency that sets requirements for underwriting mortgages
and insures residential mortgages made by private lenders against loss from default
of borrowers on residential properties.
- Federal National Mortgage Association (Commonly known as Fannie Mae)
- A quasi-governmental, stockholder-owned secondary market organization that offers
various mortgage purchase and securitization programs. (It purchases and sells residential
mortgages insured by the FHA or guaranteed by theVA as well as conventional home
- Fee Simple
- An estate under which the owner is entitled to unrestricted powers to dispose of
the property, and which can be left by will or inherited. Commonly, a synonym for
- A person or legal entity that administers investments for the benefit of another.
- Firm Commitment
- A lender’s conditions, agreement, or promise to make a loan to a specific borrower
on a specific property.
- First Mortgage
- A loan on real estate that is the primary lien against real property.
- Fixed Rate Mortgage
- A mortgage feature that structures the loan so that there will be no increases or
decreases in the interest rate during the life of the loan.
- Fixed Monthly Payment
- A feature in a loan that prevents increases or decreases in the monthly payment
amount during the life of the loan.
- Flood Insurance
- Insurance that compensates for physical property damage resulting from flooding.
It is required for properties located in federally designated flood areas.
- An effort made by the lender to offer the borrower a method of, or alternative to,
making a loan current if it is in default.
- 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.
- Forfeiture of Title
- A common penalty for the violation of conditions or restrictions imposed by the
seller upon the buyer in a deed or other proper document. For example, a deed may
be granted upon the condition that if liquor is sold on the land, the title to the
land will be forfeited (that is, lost) by the buyer (or some later owner) and will
revert to the seller.
- Forward Commitment
- A commitment to purchase loans or mortgage-backed securities, which calls for delivery
at some future date - typically beyond 90 days.
- Full Disclosure
- In real estate, revealing all the known facts, which may affect the decision of
a buyer or tenant. A broker must disclose known defects in the property for sale
- Fully Indexed Accrual Rate
- The base index value of an adjustable-rate mortgage (ARM) plus the highest gross
margin during the life of the loan.
- Functional Obsolescence
- Caused by structural components of a property being outmoded or inefficient by current
- A legal proceeding in which a person’s money or wages are taken for payment of a
debt. The amount that may be taken is set by statute (usually as a percentage) and,
in most states, a judgment is necessary before garnishment.
- Gift Letter
- A letter certifying to the validator (or underwriter) those funds in an applicant’s
account are truly a gift and need not be repaid, if applicable.
- "Good Faith" or "Mortgage Savings" clause
- A clause contained within the CC & R’s which provides that a violation thereof shall
not defeat or render invalid the lien of any mortgage or deed of trust made in good
faith and for value.
- Graduated Payment Mortgage
- A mortgage in which the monthly payments will generally increase for a set period
of time and then reach an amount that remains constant for the rest of the amortization
period. This increasing payment feature can be incorporated into fixed-rate or floating-rate
loans. For example, the borrower may agree to make initial monthly payments of $700
that will rise gradually to $900 by the fifth year, where the payment will stay
for the remainder of the loan.
- Graduated Payments
- The amount a borrower pays initially covers only part of the actual amount needed
to amortize the loan. Payments increase annually during the first few years of the
loan and then ultimately level off. Such payments may result in negative amortization
if there is no pledged account to supplement the borrower’s payment.
- A transfer of real estate, between individuals, by deed. A transfer of real estate
from a sovereign is accomplished by patent or royal decree.
- Grant Deed
- One of the many types of deeds used to transfer real property. Contains warranties
against prior conveyances or encumbrances. When title insurance is purchased, warranties
in a deed are of little practical significance.
- Gross Income
- Total income before taxes and any other expenses have been deducted.
- Gross Rent Multiplier
- A figure used to compare rental properties. It gives the relationship between the
gross rental income and sales price.
- Hazard Insurance
- Insurance coverage that compensates for physical damage to a property from fire,
wind, vandalism, or other hazards.
- Home Equity Line of Credit (Commonly known as a HELOC)
- A real estate loan, usually in a secondary lien position, allowing a borrower to
withdraw equity in real estate owned with specific limitations. Basically, one can
draw cash against his or her line of credit to use when and as needed.
- Home Equity Loans
- A loan in which the lender acquires an interest in one's home up to the amount of
this loan, giving the borrower the funds he or she needs for a purchase opportunity,
home maintenance, debt consolidation, or major expenses.
- Highest and Best Use
- The available present use or series of future uses that will produce the highest
present real property value and develop a real estate parcel to its fullest economic
- Home Inspection
- A thorough inspection that evaluates the structural and mechanical condition of
a property. A satisfactory home inspection is often included as a contingency by
- Homeowners’ Association(Commonly known as an HOA)
- A nonprofit association that manages the common areas of a planned unit development
(PUD) or condominium project. In a condominium project, it has no ownership interest
in the common elements. In a PUD project, it holds title to the common elements.
- Homeowner’s Insurance Policy(Commonly known as Hazard Insurance)s
- (Also known as Hazard Insurance) A standardized package insurance policy that covers
the residential real estate owner against financial loss from fire, theft, public
liability, and other common risks.
- A statutory protection from execution or the establishment of title by occupation
of real property in accordance with the laws of various states or the Federal Government.
- Homestead Exemption
- A state statutory exemption that protects homestead property, usually to a set amount,
against the attachment rights of creditors. Property tax exemptions for all or part
of the tax are also available in some states. Statutory requirements to establish
a homestead may include a formal declaration to be recorded.
- Housing Debt-To-Income Ratio
- The percentage of gross monthly income that goes toward paying the monthly housing
- HUD 1
- A government form that is essentially a closing statement. Required on closings
of all federally related mortgages.
- HUD Information Booklet
- Describes the closing process and costs and the loan applicant’s rights under the
Real Estate Settlement Procedures Act (RESPA).
- Any permanent structures to land such as buildings, fences and driveways, as well
as landscaping, drainage utilities, etc.
- Income Approach
- A method of establishing market value by using rental income as a factor for calculating
- (1) Measurement used by lenders in a market to determine changes in an accrual rate.
This can be based on a published, independent measure of current interest rates,
such as a Treasury Bill. An index must be readily verifiable by the borrower and
beyond the control of the lender. It provides a guideline that should accurately
reflect the current cost of lending money.
(2) A measure of prevailing market interest rates. The index is used with the margin
to determine a new interest rate at the time of adjustment. If the index increases,
the interest rate increases unless an interest rate cap is reached. Often, these
interest rates are the rates for U.S. Treasury securities. Treasury securities have
become popular as indexes because they are easy to monitor and reflect economic
- Individual Retirement Account (Commonly known as an IRA)
- A retirement account that allows individuals to make tax-deferred contributions
to a personal retirement fund. Individuals can place IRA funds in bank accounts
or in other forms of investment such as stocks, bonds, or mutual funds.
- Initial Interest Rate
- The original interest rate of the mortgage at the time of closing. This rate changes
for an adjustable-rate mortgage (ARM). Sometimes known as a "start rate" or "teaser."
- Impound Account
- A trust type of account established by lenders for the accumulation of borrower’s
funds to meet periodic payments of taxes, mortgage insurance premiums, and/or future
insurance policy premiums, required to protect their security.
- Income-To-Expenses Ratio
- The ratio of your monthly income (gross unless self-employed — in which case net
income) to monthly expenses. It is used to determine one's ability to repay debt
and thus is a crucial consideration in determining if, and for how large a loan,
one can qualify to borrow.
- Insurance against possible loss or damage. A title insurance policy is a contract
- Insurable Title
- Title to real property that a title insurance company will insure. The company issues
a title insurance policy as evidence of its insurance.
- (1) A charge for borrowing money. It is usually expressed on an annual rate, or
as a percentage, of the money still owed.
(2) Rights, share, or title in property.
(3) A general term meaning partial or total right to a property. An interest in
real estate might be a right, such as an easement, a lease or partial or full ownership.
- Interest Rate
- A percentage of the amount of a loan paid for the use of the money and covering
a specified period, usually one-year. In the income approach-to-value, the rate
or return which is necessary to attract capital to the particular type of investment
at a particular time.
- Interest Rate Buydown Plan
- An arrangement wherein the property seller (or any other party) deposits money to
an account so that it can be released each month to reduce the mortgagor’s monthly
payments during the early years of a mortgage. During the specified period, the
mortgagor’s effective interest rate is "bought down" below the actual interest rate.
- Any person or institution that invests in mortgages or mortgage-backed securities.
- Joint Tenancy
- A joint holding of property by two or more persons, who, as co-tenants, enjoy the
property equally throughout their lives with right to survivorship to the other
grantees. Typically used by related persons.
- Joint Venture
- An association between two or more parties, usually to own and/or develop real estate,
formed for a specific purpose and duration. It may take a variety of legal forms.
- A general lien, which attaches to all the lands of the judgment debtor when docketed;
the final determination of the rights of the parties in an action or special proceeding.
- Judicial Foreclosure
- A type of foreclosure proceeding used in some states that is handled as a civil
lawsuit and conducted entirely under the auspices of a court.
- Junior Lien
- A loan secured by a mortgage that does not stand in a first lien position. Also
called "junior (or second or third) mortgage."
- Land Contract
- An installment contract for the sale of land whereby the seller (vendor) holds legal
title and the buyer (vendee) has equitable title until the sales price is paid in
- Land Loan
- A loan for the acquisition of land without any improvements thereon. Usually held
in anticipation of zoning and until plans are drawn and construction financing can
- Land Survey
- An instrument that specifies precise property boundaries. It is useful in determining
if boundary violations (encroachments) exist.
- Late Charge
- The penalty a borrower must pay when a payment is made a stated number of days (usually
15) after the due date.
- A written agreement stating the conditions for the possession and use of real estate
(and/or personal property) given by the owner (landlord) to another person (the
tenant) for a specified rent and period of time.
- An estate or interest in an estate in real property held by virtue of a lease. A
leasehold estate has a specific duration. Some states allow leases up to 99 years
and consider longer lease to be fee simple ownership.
- Legal Description
- A valid legal description must identify a parcel of land to the exclusion of all
others. It can take the form of the rectangular survey, the metes and bounds, or
a recorded plat (lot and block number).
- Any person or entity advancing funds which are to be repaid. A general term encompassing
all mortgagees and beneficiaries under deeds of trust.
- The use of borrowed money to increase one’s return on a cash investment. For leverage
to be profitable, the rate of return on the investment must be higher than the cost
of the money borrowed (interest plus amortization). Leverage has the potential to
- Debts and obligations that a person may owe including, but not limited to, installment
loans, charges, and mortgages.
- A special encumbrance; a charge against property whereby the property is made security
for the payment of a debt or charge such as a judgment, a mortgage or tax; a lien
is an asset and, therefore, may be assigned.
- Lien holder
- Any person or organization who holds a legal claim over the specific property of
another as security for debt.
- Liquid Asset
- A cash asset or an asset that is easily converted into cash.
- The ability of an individual or business to quickly convert assets into cash without
incurring a considerable loss.
- Loan Closing
- A meeting between borrower and lender in which transfer of ownership is accomplished;
funds and deed are exchanged, and all loan documents, including the promissory note
and mortgage, are signed.
- Loan Estimate
- Provides a breakdown of the estimated closing charges.
- Loan Modification
- Any change in the terms of the loan, any change in the property or any change in
the borrower’s liability for the loan.
- Loan Origination
- The process by which a mortgage lender brings into existence a mortgage secured
by real property.
- Loan Portfolio
- The total of all the loans that a financial institution or other lender holds at
a given time. A list, distribution or grouping of mortgage loans.
- Loan Servicing Department
- The division of a mortgage lending institution that is responsible for servicing
the terms and conditions of the loan agreement. The duties of a loan servicing department
include the collection of payments, interest and principal, trust items such as
hazard insurance and taxes, and conducting foreclosures. Servicing duties also consist
of operational procedures covering accounting, bookkeeping, insurance, tax records,
loan payment follow-up and loan analysis. A fee is charged to the borrower for these
- Loan to Value
- Mathematical computation that compares the loan amount to the value of the property.
- Loan-to-Value Ratios (Commonly known as the LTV)
- The relationship between the amount of the mortgage loan and the lower of sales
price or appraised value of the security expressed as a percentage. Used by lenders
to determine maximum loan amounts as set by law.
- Lock-in Rate
- The interest rate percentage for a loan that will remain the same until funding
or for a predetermined amount of time.
- Lot Equity
- If a borrower owns the land and is seeking a mortgage for a home under construction,
the value of the land may be recognized as a down payment equivalent to cash.
- The figure added to the Index to determine the new rate of interest.
- Market Data Approach
- The process of estimating the value of a property through the examination and comparison
of actual sales of comparable properties.
- Market Value
- The highest price which a buyer, willing, but not compelled to buy would pay; and
the lowest a seller, willing, but not compelled to sell, would accept.
- The date on which the principal balance of a loan, bond, or other financial instrument
becomes due and payable.
- Mechanic’s Lien
- A claim created by law for the purpose of securing priority payment for work performed
and material furnished by a mechanic or other person who has done construction or
repair of a building. Such a claim attaches to the land as well as buildings and
- Information that is provided to and is relied upon by a third party as fact, but
that is untrue and material to the risk assumed. The information may be provided
with the knowledge that it is untrue and with the intent to deceive, or provided
as the truth without knowing for a fact that it is not true.
- Alleviation, abatement or diminution of a loss.
- The act of changing any of the terms of the mortgage.
- Modification Agreement
- Any agreement between the lender and the borrower that permanently alters any of
the terms of the original mortgage or note.
- Money Market Account
- A savings account that provides bank depositors with many of the advantages of a
money market fund. Certain regulatory restrictions apply to the withdrawal of funds
from a money market account.
- Monthly Housing Expense
- Typically will include principal, interest, taxes, insurance, mortgage insurance,
and homeowner’s association dues, if applicable.
- A written instrument recognized by law by which real property is pledged to secure
a debt or obligation; a lien on real property. (Also known as the security instrument).
- Mortgage Banker
- An entity or individual active in the field of mortgage banking. Mortgage bankers,
as local representatives of regional or national institutional lenders, act as correspondents
between lenders and borrowers.
- Mortgage Broker
- An individual or company that brings borrowers and lenders together for the purpose
of loan origination. Mortgage brokers typically require a fee or a commission to
- Mortgage Insurance
- A contract that insures the lender against loss caused by a mortgagor’s default
on a government mortgage or conventional mortgage. Mortgage insurance can be issued
by a private company or by a government agency such as the Federal Housing Administration
(FHA) or the Department of Veterans Affairs (VA). Depending on the type of mortgage
insurance, the insurance may cover a percentage, or virtually all, of the mortgage
- Mortgage Lender
- A classification used to describe those institutions or organizations at least partially
engaged in the primary mortgage market - that is, extending funds directly to the
- Mortgage Note
- A legal document describing the method or terms of repayment of the mortgage/deed
of trust. It is signed by the borrowers and is the promise to repay the loan.
- Mortgage Pass-Through Certificate
- Securities that represent the purchaser’s ownership of an undivided interest in
a pool of mortgages, typically for residential loans. Unlike bonds, these securities
constitute a sale of assets by the originator/issuer. There may be a legal obligation
for repayment on the part of the originator/issuer, other than to "pass through"
payments collected on the underlying mortgages or credit insurance policies.
- Mortgage-Backed Securities
- Bond-type investment securities representing an undivided interest in a pool of
mortgages or trust deeds. Security guaranteed by the Government National Mortgage
Association (GNMA), issued to savings and loan associations, mortgage bankers, commercial
banks and other institutions. The GNMA security holder is backed by the "full faith
and credit of the United States."
- The party lending the money and receiving the mortgage.
- The party who borrows the money and gives the mortgage.
- Multiple Borrowers
- Two or more borrowers who are not husband and wife.
- Negative Amortization
- The unpaid interest which is added to the mortgage principal in a loan where the
principal balance increases rather than decreases because the mortgage payments
do not cover the full amount of interest due.
- Net Yield
- The part of the gross yield remaining after the deduction of all charges or costs,
- Net Worth
- The value of all assets, including cash, less total liabilities. Often used as an
underwriting guideline to indicate creditworthiness and financial strength.
- Non-Conforming Mortgage Loan
- A mortgage loan that does not conform to industry standards as set by Freddie Mac
and Fannie Mae.
- Non-Owner-Occupied Property
- Property purchased by a borrower not for a primary residence but as an investment
with the intent of generating rental income, tax benefits and profitable resale.
- A unilateral agreement containing an express and absolute promise of the signer
to pay to a named person, or order, or bearer, a definite sum of money at a specified
date or on demand. Usually provides for interest and, concerning real property is
secured by a mortgage or trust deed.
- Note Rate
- The interest rate stated on a mortgage note.
- Notice of Default
- A notice recorded after the occurrence of default under a deed of trust or mortgage.
Typically required by an interested third party that has insured or guaranteed the
- Offer to Purchase
- A document completed by a homebuyer specifying the terms and conditions under which
real estate will be purchased.
- Open End Mortgage
- A mortgage with a provision that the outstanding loan amount may be increased upon
mutual agreement of the lender and the borrower.
- Original Cost
- The purchase price of property, paid by the present owner. The present owner may
or may not be the first owner.
- Origination Fee
- The fee that the lender charges the borrower to cover the cost of issuing a loan
commitment. It pays for processing the loan, which includes collecting information
about the borrower’s creditworthiness and the property. The fee is usually computed
as a percentage of the mortgage loan. It usually does not include fees for appraisals,
credit reports, inspections and loan document preparation.
- Owner-Occupied Property
- The borrower or a member of the immediate family lives in the property as a primary
- Owner's Policy
- A policy of title insurance usually insuring an owner of real estate against loss
occasioned by defects in, liens against or unmarketability of the owner’s title.
- The principal amount of a mortgage with no premium or discount (100%).
- Any area of land contained within a single description.
- Partial Payment
- In loan collection, a loan payment that is less than the amount due, under the terms
of the mortgage note. Usually, it will not be credited to the account until the
balance of the amount due is paid.
- Partial Release
- A mortgage lender’s or lien holder’s relinquishment of its claim to some portion
of the property, which originally stood as security for the mortgage loan.
- A mortgage loan made jointly by two or more lenders or owned jointly by two or more
- Participation Certificate
- A document setting forth the actual package of loans and the share of the package
that is being bought or sold; the certificate is attached to a previously executed
loan participation agreement.
- An association of two or more persons who have contracted to join in business and
share the profits.
- Party Wall
- A wall generally erected on a property boundary or between two lots for the common
benefit and use of the property owners on either side.
- A conveyance of title to land by the Federal or State Government.
- Payment Shock
- Occurs when the terms of a mortgage instrument require an increased payment and
the borrower is unable to make or keep up with the increased payment obligation.
- Perfecting Title
- The process of elimination of any and all claims, other than the owner’s, to the
title of a property.
- Performance Bond
- A bond to guarantee performance of a specified act, such as the completion of property
or off-site improvements.
- Permanent Financing
- A mortgage loan, usually covering development costs, interim loans, construction
loans, financing expenses, and marketing, legal and other costs. This loan differs
from a construction loan in that the financing goes into place after the project
is constructed and open for occupancy. It is a long-term obligation, generally for
a period of 10 years or more.
- The term used to describe loan applications in process until closing or until the
mortgage is sold. Used when analyzing mortgage loan inventory and commitment coverage.
- Principal, Interest, Taxes and Insurance. The Principal and Interest can be either
fixed for the term of the loan or changed at specific intervals in accordance with
the terms of the loan program. The Taxes and Insurance portion may be adjusted to
reflect changes in taxes and/or insurance costs.
- PITI Ratio
- Compares the amount of the monthly income to the amount the borrower will owe each
month in principal, interest, real estate tax and insurance on a mortgage. Lenders
use it in deciding whether to give the borrower a loan. (Compare to Qualifying Income
- Planned Unit Development (Commonly known as a PUD)
- (1) A comprehensive development plan for a large land area. It usually includes
residences, roads, schools, recreational facilities, and service areas plus commercial,
office, and industrial areas;
(2) A subdivision having lots of areas owned in common and reserved for the use
of some or all of the owner of the separately owned lots.
- A map representing a piece of land subdivided into lots and streets, boundaries,
easements, and dimensions shown on it. It is usually recorded and made a part of
the public record.
- Pledged Account
- Funds put into an account to cover the difference in monthly payments of a graduated
payment mortgage loan. Money is withdrawn to supplement the lower monthly principal
and interest payment to bring it up to the necessary amount needed to amortize the
loan within the contracted term.
- Private Mortgage Insurance. Insurance offered by a private company that protects
a Lender against loss (up to policy limits) on a defaulted mortgage loan. Its use
is usually limited to loans with a high loan-to-value ratio. The borrower pays the
- An amount equal to one percent of the principal amount of a note. Loan discount
points are a one-time charge assessed at closing by the lender to increase the yield
on the mortgage loan to a competitive position with other types of investments.
- Power of Attorney
- An instrument authorizing a person to act as the agent of the person granting it.
A general power authorizes the agent to act generally on the behalf of his principal;
a limited power of attorney restricts the agent to a specific or particular act
- Power of Sale
- A legal procedure in some states in which the lender exercises a right, expressed
in the loan documents, to take title to the property of the defaulting borrower
and offer it at public sale to the highest bidder. There is no court action involved.
- "Pre," "Prelim" or Preliminary Title Report
- A written report issued by a title company, preliminary.
- Mortgage preapproval specifies the actual amount a buyer is preapproved by a lender
to borrow before a house is purchased. The buyer has to apply and qualify for the
mortgage. Preapproval allows the buyer to negotiate like a cash buyer. Even if the
buyer is not granted preapproval status, it's a helpful step to take, as it illuminates
existing problems in securing a loan and allows the buyer to take steps toward resolving
- The amount, often stated as a percentage, paid in addition to the face value of
a note or bond. The opposite of Discount. Also, the charge for insurance coverage.
- Prepaid Interest
- Interest that the borrower pays the lender before it becomes due.
- Prepayment Clause
- A clause in the mortgage permitting partial or full payment prior to the end of
the loan term. Many of these clauses contain a provision that a prepayment penalty
must be paid if prepayment is exercised.
- Prepayment Penalty
- A penalty under a note, mortgage or deed of trust imposed when the loan is paid
before its maturity date.
- Prepayment Privilege
- The right given a borrower to pay all or part of a debt prior to its maturity. The
mortgagee cannot be compelled to accept any payment other than those originally
- Providing financial information (credit ratings, employment status and income, and
outstanding debts) to a lender in order to calculate a suitable mortgage for the
buyer. Prequalification grants no legal rights, but is helpful in showing how large
a mortgage one can handle and, by extension, how much house one can afford.
- Primary Mortgage Market
- The market where mortgage funds are distributed from lenders to individual borrowers.
It is contrasted with the secondary mortgage market where mortgage loans are sold
by lenders to investors.
- The amount of debt, exclusive of accrued interest remaining on a loan. The part
of the monthly payment that reduces the remaining balance of a mortgage.
- Principal Balance
- The outstanding balance of a mortgage, exclusive of interest and any other charges.
The capital sum of a loan.
- Principal Curtailment
- The payment of additional principal to the loan balance aside from the normal monthly
payment. Often used to pay down the loan in a shorter time period.
- Private Mortgage Insurance. (Commonly known as PMI)
- Insurance offered by a private company that protects a Lender against loss (up to
policy limits) on a defaulted mortgage loan. Its use is usually limited to loans
with a high loan-to-value ratio. The borrower pays the premiums.
- The order of preference, rank or position of the various liens and encumbrances
affecting the title to a particular parcel of land. Usually, the date and time of
recording determine the relative priority between documents.
- The preparation of a mortgage loan application and supporting documents.
- The challenge a lender faces to structure a loan so that a healthy margin of profit
is maintained in an environment of fluctuating interest rates.
- Promissory Note
- A document in which the borrower promises to pay a stated amount on a specific date.
The note normally states the name of the lender, the terms for payment and any interest
- Property Appraisal
- An supportable estimate of a property’s market value determined by a trained and
certified appraiser who measures the likelihood that a property will maintain its
value over the duration of the loan.
- To divide expenses and income between a buyer and a seller in proportionate shares.
For example, a buyer purchases property at midyear after the seller has already
paid taxes on the property for the whole year. The buyer reimburses the seller for
one-half of those taxes, the pro-rata share, for the buyer’s share of that year.
- Public Domain
- Land owned by the government and belonging to the community at large.
- Public Records
- The transcriptions in a recorder’s office of instruments which have been recorded,
including the indexes pertaining to them.
- Purchase Money
- Refers to a loan for the purpose of purchasing a home, rather than a refinance or
home improvement loan.
- Qualifying Ratios
- Calculations that are used in determining whether a borrower can qualify for a mortgage.
They consist of two separate calculations: a housing expense as a percent of income
ratio and total debt obligations as a percent of income ratio.
- Quiet Title
- To free the title to a piece of land from the claims of other persons by means of
a court action called a "quiet title" action. The court decree obtained is a "quiet
- Quitclaim Deed
- A deed that transfers without warranty whatever interest or title a grantor may
have at the time the conveyance is made.
- Rate and Term Refinance
- The borrower replaces a mortgage loan on the subject property with another mortgage
loan for the purpose of getting a better interest rate and loan term.
- Rate Lock
- A commitment issued by a lender to a borrower or other mortgage originator guaranteeing
a specified interest rate for a specified period of time.
- Real Estate Owned
- A term used by lending institutions that refers to ownership of real property acquired
for investment or as a result of foreclosure.
- Real Estate Settlement Procedures Act (Commonly known as RESPA)
- A federal statute and regulation promulgated by HUD governing real estate lending
practices and disclosures. Its main features pertain to the provision of a good
faith estimate of loan settlement costs and the provision of the HUD settlement
booklet within three days of making a loan application. It is designed to help homebuyers
compare settlement costs among lenders and to eliminate kickbacks.
- Real Property
- Land and anything permanently affixed to the land, such as fences, buildings and
those things attached to the buildings, such as light fixtures or plumbing. May
refer to rights in real property as well as the property itself.
- Anyone who is licensed to both buy and sell real estate in an area and who is an
active member in the local real estate board affiliated with the National Association
- An adjustment to the current mortgage, a form of loan modification,which does not
involve the issuance of a new mortgage guaranty insurance certificate. With a recast
loan, a modification may be made in the type of instrument involved. In whatever
form a recast loan takes, the major benefit to the borrower is the potential for
substantially reduced mortgage payments.
- A court-appointed person who holds property and any income from that property,pending
a court-ordered final resolution of the legal dispute.
- When one major entity will accept the documentation used by another major entity.
An example would be Freddie Mac accepting Fannie Mae’s appraisal forms, for a loan
that is being sold to Freddie Mac, and vice versus.
- An instrument used to transfer title from a trustee to the equitable owner of real
estate, when title is held as collateral security for a debt. Most commonly used
upon payment in full of a trust deed. Also called a deed of reconveyance or release.
- The public official who keeps records of transactions that affect real property
in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."
- Filing documents affecting real property as a matter of public record, giving notice
to future purchasers, creditors, or other interested parties. Recording is controlled
by statute and usually requires the witnessing and notarizing of an instrument to
- Recording Fees
- Fees charged by a county recorder's office to record a mortgage or deed of trust.
- Recourse Loan
- A type of loan in which a lender can hold the borrower personally liable if the
borrower fails to meet all the requirements of the mortgage.
- Redemption Period
- The time period, in a foreclosure, in which a borrower in default cannot be divested
of legal title or evicted and can exercise the right to redeem the property by paying
the debt in full.
- The repayment of a debt from the proceeds of a new loan using the same property
- Regulation Z
- Federal regulation prescribed by the Federal Reserve Board to carry out the purposes
of the Truth-in-Lending Act.
- The restoration of real property to good use through repair of structures or improvements
of public facilities of a declining area or neighborhood with deteriorating influences.
- Occurs when a borrower cures a mortgage default. A mortgage is reinstated if it
is brought up to date by paying all charges that had become overdue.
- Replacement Cost
- The cost of erecting a building to take the place of or serve the functions of a
- To avoid or cancel in such a way as to treat the contract or other object of the
rescission as if it never existed.
- The cancellation or annulment of a transaction or contract by the operation of a
law or by mutual consent. Borrowers usually have the option to cancel a refinance
transaction within three business days after it has closed.
- Also called restrictive covenants. Provisions in a deed or other instrument whereby
an owner of land prohibits or restricts certain use, occupation or improvement of
- A document that is attached to another document for the purpose of amending, or
supplementing the other document. The following riders, if required, based on loan
type, are attached to the mortgage/deed: Adjustable Rate Rider, Condominium Rider,
and PUD Rider.
- Right of Way
- (1) The right to pass over property owned by another usually based upon an easement.
(2) A path or thoroughfare over which passage is made.
(3) A strip of land over which facilities such as highways, railroads or power lines
- Sales Concessions and Financing
- (1) Owner-financed transactions.
(2) Chattel included in the sale.
(3) Points or fees paid to the lender by the developer, not by the borrower.
- Sales Contract
- The legal document containing the complete terms of the agreement between buyer
and seller for the sale of a particular parcel or parcels of real estate. It typically
specifies requested loan amount, who will pay closing costs, discount points, repair
costs, FHA UFMIP, if the VA Funding Fee will be financed, and/or required inspections.
- Satisfaction of Mortgage
- The legal document, usually recorded, that proves that the borrower completely paid
off the mortgage. It is given to the borrower by the lender.
- Seasoned Loan
- A loan that has been closed and on a lender’s books for at least 12 months.
- Second Mortgage
- A mortgage that has a lien position subordinate to the first mortgage.
- Secondary Market
- A system whereby lenders and investors buy existing mortgage loans or mortgage-backed
securities, and in doing so, provide greater availability of funds for additional
mortgage lending by banks, mortgage bankers, and savings and loan associations.
- The property that will be pledged as collateral for the mortgage.
- Security Instrument
- A recorded legal document given by the borrower to the lender. It pledges the title
of the property as insurance to the lender for the full payment of the mortgage.
Mortgages, deeds of trust and deeds to secure debt are considered security instruments.
The security instrument contains the description of the property.
- Separate Property
- Real property owned by one spouse exclusive of any interest of the other spouse.
- The collection of monthly payments, payment of the taxes and insurance plus any
other required escrows from established reserves, monitoring loan delinquencies,
and filing foreclosure proceeding when necessary.
- Servicing Costs
- The expenses incurred by a Servicing Department in servicing loans, including money
spent on staff, computer facilities, foreclosure costs, etc.
- Servicing Fee
- The monthly fee retained by a loan Servicing Department according to the terms of
a Servicing Agreement.
- Servicing Released
- A loan sale in which the original lender relinquishes the loan servicing responsibilities
to the institution or investor purchasing the loan.
- Servicing Retained
- A loan sale in which the original lender’s servicing department continues to service
the loan after the sale to a secondary institution or investor.
- Settlement Statement
- The complete breakdown of costs involved in the real estate transaction for both
the seller and the buyer.
- Preparing and sending the complete package of mortgage documents to the investor.
- An area of land laid-out and divided into lots, blocks, and building sites, and
in which public facilities are laid-out, such as streets, alleys, parks, and easements
for public utilities.
- Subordination Agreement
- An agreement by which one encumbrance (for example, a mortgage) is made subject
to another encumbrance (perhaps a lease). To "subordinate" is to "make subject to,"
or to make of lower priority.
- Subordinate Financing
- Secondary financing secured by a lien that is junior to the first mortgage or senior
claim, such as a second mortgage.
- Surface Rights
- Rights to enter upon and use the surface of a parcel of land, usually in connection
with an oil and gas lease or other mineral lease. They may be "implied" by the language
of the lease (no explicit reservation or exception of the surface rights) or "explicitly"
- The process by which boundaries are measured and land areas are determined; the
on-site measurement of the lot lines, dimensions and position of a house on a lot,
including the determination of any existing encroachments or easements.
- Take Out Commitment
- A promise to make a loan at a future specified time. It is most commonly used to
designate a higher-cost, shorter-term, back-up commitment as a support for construction
financing until a suitable, permanent loan can be secured.
- Tax Lien
- A claim against property for the amount of its due and unpaid taxes.
- Tax Sale
- Property on which current county taxes have not been paid is "sold to the state."
No actual sale takes place. The title is transferred to the state, and the owner
may redeem it by paying taxes, penalties and costs. If it has not been redeemed
within five years, the property (referred to as "tax sold property") is actually
deeded to the state. (Similar "sales" to cities take place for unpaid city taxes.)
- Tenancy in Common
- In law, the type of tenancy or estate created when real or personal property is
granted, devised or bequeathed to two or more persons in the absence of express
words creating a joint tenancy. There is no right of survivorship.
- One who is not the owner, but occupies real property with the consent of the owner.
The tenant is entitled to exclusive possession and enjoyment of the property for
a specified period of time and is responsible for the payment of rent as specified
in a lease.
- Tenants by the Entirety
- Ownership by husband and wife who share equal rights to the undivided interest of
the property. In the event of death of one, the survivor owns the property without
- To offer or present for acceptance.
- The period of time between the commencement date and termination date of a note,
mortgage, legal document or other contract.
- Third Party
- A general term that includes anyone that is not a party to a contract, agreement,
- Evidence of the right to or ownership of a property. In the case of real estate,
the documentary evidence of ownership is the title deed that specifies in whom the
legal statement is vested and the history of ownership and transfers. Title may
be acquired through purchase, inheritance, devise, gift, or through foreclosure
of a mortgage.
- Title Insurance Binder
- (1) A report issued by a title insurance company stating the condition of title
to certain property as of a certain date and also stating conditions which, if satisfied,
will cause a policy of title insurance to be issued. Also called a "title commitment."
(2) A policy of title insurance calling for a reduced rate for a future policy if
the property is sold within a specified period.
- Title Insurance Policy
- A contract by which the insurer, usually a title insurance company, agrees to pay
the insured a specific amount for any loss caused by defects in title to real estate,
wherein the insured has an interest as purchaser, mortgagee, or otherwise.
(A) Owner’s Title Policy: Usually issued to the landowner himself. The owner’s title
insurance policy is bought and paid for only once and then continues in force without
any further payment. Owner’s Title Insurance policies cannot be assigned to another
- Title Search
- An examination of public records to disclose the past and current facts regarding
the history of ownership.
- A residential unit on a small lot which has coincidental exterior limits with other
similar units. Title to the unit and its lot is vested in the individual buyer with
a fractional interest in common areas, if any.
- (1) Someone who holds the legal title to another’s property, usually as security
for a debt that person owes a lender.
(2) A fiduciary that holds or controls something for the benefit of another.
(3) A third party to whom property is legally committed in trust.
- In a deed of trust, the borrower is referred to as the trustor.
- A federal law that requires lenders to fully disclose, in writing, the terms and
conditions of a mortgage, including the annual percentage rate (APR) and other charges.
- Two-to-Four-Family Property
- A property that consists of a structure that provides dwelling units for two to
four families, although ownership of the structure is by a single deed.
- An analyst who reviews the supportive documentation to determine the risk associated
with the loan request and the conditions or stipulations required for loan approval.
- In mortgage banking, the analysis of the risk involved in making a mortgage loan
to determine whether the risk is acceptable to the lender. It involves the evaluation
of the property as outlined in the appraisal report, and of the borrower’s ability
and willingness to repay the loan.
- Universal Residential Loan Application (Commonly known as the URLA or 1003)
- Residential loan application, commonly known as the 1003. The form used to apply
for a mortgage loan and to record pertinent information concerning a prospective
mortgagor and proposed security.
- VA Loan
- A long-term, no-down-payment or low-down-payment loan guaranteed by the Department
of Veterans Affairs. Individuals usually qualify by proof of military service.
- (A.K.A. Underwriter/Pro-writer) An analyst who reviews the supportive documentation
to determine the risk associated with the loan request. The person who gives final
- Estimation of the value or the price through appraisal.
- Neighborhood; often used to refer to the county or place in which an acknowledgment
is made before a notary; also refers to the county in which a lawsuit may be filed
- Verification of Deposit (Commonly known as a VOD)
- A form that requests and secures verification of the amounts on deposit at a financial
institution. When a depository institution is also the applicant’s creditor, the
VOD verifies the obligation.
- Verification of Employment (Commonly known as a VOE)
- The form used to verify the borrower’s present, previous and part-time employment.
- Having the right to use a portion of a fund such as an individual retirement fund.
For example, individuals who are 100 percent vested can withdraw all of the funds
that are set aside for them in a retirement fund; however, taxes may be due on any
funds that are actually withdrawn.
- The names, status and manner in which title of ownership is held with a fixed or
determinable interest in a particular parcel of real property; also, that portion
of a title report or policy setting forth the above.
- Voluntary Conveyance
- A transfer of title to real property, usually from a delinquent mortgagor to the
mortgagee, given voluntarily to satisfy the balance due on a defaulted loan and
to avoid foreclosure proceedings. Also called "deed in lieu of foreclosure" or "voluntary
- Waiver of Lien
- The written evidence from a contractor (or supplier of material) surrendering the
right of lien to enforce collection of debt against property.
- The borrowing of funds by a mortgage banker on a short-term basis at a commercial
bank using permanent mortgage loans as collateral. This form of interim financing
is used until the mortgages are sold to a permanent investor.
- A legal, binding statement in which one party gives another party certain assurances
regarding the property being sold, usually upon which the latter party can rely
- Warranty Deed
- A deed in which the grantor or seller warrants or guarantees that good title is
being conveyed, as opposed to a quitclaim deed which contains no representation
or warranty regarding the quality of title being conveyed.
- Water Table
- Distance from the ground surface to a depth at which natural groundwater is found.
- Weighted Average Yield
- The average of the coupon rates of the loans in the package in which each rate is
"weighted" according to the balance of the corresponding mortgage.
- Whole Loan
- A loan in which a seller retains no interest in that loan upon sale, but normally
continues to service it for a fee.
- Work Equity
- Work to be completed by a borrower on a home under construction that may be applied
as part of a down payment.
- Wrap-Around Mortgage
- A form of refinancing. When the borrower already owns a property and borrows more
money, the lender combines the amount still owed on the home’s original loan with
the new amount to form one wrap-around mortgage.
- The ratio of investment income to the total amount invested over a given period
- Your Home Loan Toolkit
- Describes the closing process and costs and the loan applicant’s rights under the
Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA).
- The act of city or county authorities specifying the type of use to which property
may be put in specific areas.