Loan Glossary

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Abstract of Title - Documents recording the ownership of property throughout time.
Acceleration - The right of the lender to demand payment on the outstanding balance of a loan.
Acceptance - The written approval of the buyer's offer by the seller.
Additional Principal Payment - Payment over and above your monthly mortgage payment amount, which can be applied to the remaining principal amount of the loan.
Adjustable Rate Mortgage (ARM) - An ARM Loan (Adjustable Rate Mortgage) is a loan type that allows the lender to adjust the interest rate during the term of the loan. Generally, these changes are determined by a margin and an index so that the interest rate changes, up or down, are based on the market conditions at the time of the rate change. Most often the interest rate changes are limited by a rate change cap and a lifetime cap.
Adjustment Date - The actual date that the interest rate is changed for an ARM.
Adjustment Index - The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.
Adjustment Period - The frequency at which the interest rate on an ARM loan changes - i.e. every 6 months, once a year, once every 3 years, etc.
Affidavit - A signed, sworn statement made by the buyer or seller regarding the truth of information provided.
Amenity - An enhancement to a piece of property that is not essential to the property's use, but may increase the property's value. Examples include a swimming pool, tennis courts, scenic view, access to a body of water, etc.
Amortization - The breakdown of a mortgage loan (including principal and interest) into equal payments over a specified period of time. An amortization schedule shows the amount of each payment applied to principal and interest and the remaining balance after each payment is made.
Annual Percentage Rate (APR) - To make it easier for consumers to compare mortgage loan interest rates the federal government developed a standard format called an "Annual Percentage Rate" or APR, to provide an effective interest rate for comparison shopping purposes. Some of the costs that you pay at closing are factored into the APR for ease of comparison. Your actual monthly payments are based on the periodic interest rate, NOT on the APR.
Application - The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Application Fee - A fee charged by lenders to process a loan application.
Appraisal - An estimated value of the property. As part of the loan approval process, the lender will hire an appraiser to assess the property and determine whether the loan amount is appropriate to its value. The appraiser uses several factors to determine the property's value, including its size, location, condition and the sale price of recently sold comparable properties in the area.
Appraised Value - An estimation of the current market value of a property.
Appraiser - A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
Appreciation - An increase in property value.
Arbitration - legal method of resolving a dispute without going to court.
As-is Condition - The purchase or sale of a property in its existing condition without repairs.
Asking Price - A seller's stated price for a property
Appraisal Fee - Fee charged by an appraiser to estimate the market value of a property
Assessed Value - The value of a piece of property as determined by a public tax assessor for the purpose of determining the annual property tax.
Assessment - The process of determining a property's value. Can also refer to a fee levied against a property for a special purpose such as a sewer assessment.
Assets - Any item with measurable value.
Assumable Mortgage - A mortgage that can be taken over or "assumed" by the buyer when a home is sold.
Assumption Clause - A provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.
Automated Underwriting - Loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.
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Back End Ratio (debt ratio) - A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.
Balloon Mortgage - A balloon mortgage is one in which monthly payments are made for a specified period of time, with the balance of the loan paid in full at the end of the loan term. Like an ARM, interest rates on a balloon mortgage are typically lower than on a fixed rate mortgage.
Balloon Payment - The final lump sum payment due at the end of a balloon mortgage.
Bankruptcy - A federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Betterment - An improvement made to a piece of property that increases its value, rather than a repair that simply maintains its current value.
Bid - Also called an "offer". When a potential buyer is interested in purchasing a house, they will place a bid, offering to pay the seller a certain price for the house. The seller may either accept, or counter-offer until a price, closing date, and all contingencies are agreed upon. The house is then considered to have an accepted offer and remains so until the closing date, at which point the buyer takes possession of the house. If the buyer is unable to purchase the house at any time between bid acceptance and closing, the house goes back on the market.
Biweekly Payment Mortgage - A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.
Borrower - A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Bridge Loan - Also called a swing or interim loan, a bridge loan is an "in-between" loan that allows a buyer to make a down payment on a new home before their current home is sold. Typically, the money made from the sale of a current home would be immediately applied to the purchase of a new home; but when the timing is not right, a bridge loan can help the buyer finance their new home while the current home is still for sale.
Broker - A person who works between two parties to negotiate a contract, such as a mortgage broker or real estate broker.
Budget - A detailed record of all income earned and spent during a specific period of time.
Buy Down - The seller pays an amount to the lender so the lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.
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Cap - In an ARM, a cap is a limit placed on the increase or decrease of the interest rate or monthly payments.
Capacity - The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.
Capital Gain - The profit received based on the difference of the original purchase price and the total sale price.
Capital Improvements - Property improvements that either will enhance the property value or will increase the useful life of the property.
Capital or Cash Reserves - A refinance transaction in which the amount of money received from the new loan exceeds the total outstanding amount on the existing first mortgage, in essence allowing the borrower to receive cash back from their loan.
Cash-Out Refinance - A refinance transaction in which the amount of money received from the new loan exceeds the total outstanding amount on the existing first mortgage, in essence allowing the borrower to receive cash back from their loan.
Cash Reserves - A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender
Casualty Protection - Property insurance that covers any damage to the home and personal property either inside or outside the home.
Certificate of Title - A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Chapter 7 Bankruptcy - A bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.
Chapter 13 Bankruptcy - This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms within a 3 to 5 year period.
Charge-Off - The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Clear Title - A property title that has no defects. Properties with clear titles are marketable for sale.
Closing - The point at which the property's sale becomes final. The borrower signs the mortgage papers and in return receives the deed to the property. It is at this point that the down payment and closing costs are paid to the lender.
Closing Costs - All costs incurred during the purchasing of the property, not including the sale price itself. This may include (but is not limited to) points, origination fees, attorney's fees and title insurance. Closing costs vary from state to state, but your loan officer will be able to give you an estimate when you apply for your loan.
Co-Borrower - An additional person that is responsible for loan repayment and is listed on the title.
Co-Signed Account - An account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.
Co-Signer - A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
Collateral - An asset (such as a car or a home) that is considered a guarantee for repayment of a loan.
Collection Account - An unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower's credit report.
Commission - An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.
Commitment Letter - A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer, also called a "loan commitment".
Compensating Factors - Factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.
Condominium - A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.
Conforming loan - Is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Consideration - An item of value given in exchange for a promise or act.
Consideration Loan - A short-term loan used for financing the construction cost of a home, in which the lender makes payments to the builder at periodic intervals as the work progresses.
Consumer Reporting Agency - An organization that prepares credit reports for lenders to determine the credit history of a potential borrower.
Contingency - A condition placed on a contract that must be met in order for the contract to be legally binding. For example, a bid placed on a house might contain a contingency that states the house must pass inspection.
Conventional Loan - A conventional loan is one that is not backed by the federal government.
Convertible ARM - An ARM that can be converted to a fixed-rate mortgage under specified conditions.
Cooperative (Co-op) - Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.
Cost of Funds (COF) - Monthly average cost of borrowings reported by members of the Federal Home Loan Bank system, calculated on either a national or regional basis. The COF is one of the indexes that a lender can use to determine the rate adjustments on ARM loans.
Counter Offer - A rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.
Covenants - Legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.
Credit Bureau - An agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.
Credit Counseling - Education on how to improve bad credit and how to avoid having more debt than can be repaid.
Credit Enhancement - A method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.
Credit Grantor - A record of a person's debts, both open and paid, and their payments toward those debts. This is a tool used by a lender to determine a potential borrower's ability to repay a mortgage, based on their history of repaying other debts in a timely manner.
Credit History/Report - A record of a person's debts, both open and paid, and their payments toward those debts. This is a tool used by a lender to determine a potential borrower's ability to repay a mortgage, based on their history of repaying other debts in a timely manner.
Credit Repair Companies - Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.
Credit Risk - term used to describe the possibility of default on a loan by a borrower.
Credit Score - A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 - 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk
Creditor - The lending institution providing a loan or credit.
Creditworthiness - The way a lender measures the ability of a person to qualify and repay a loan.
Curtailment - Additional payment to principal
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Debt Security - A security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.
Deed - A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.
Deed-in-Lieu - To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Default - When a borrower fails to make their mortgage payment, resulting in foreclosure on the mortgaged property.
Delinquency - Failure of a borrower to make timely mortgage payments under a loan agreement. Generally after fifteen days a late fee may be assessed.
Deposit (Earnest Money) - Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
Depreciation - A decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.
Disclosures - The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect might face legal penalties.
Discount Point - Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan. In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.
Down Payment - The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.
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Earnest Money (Deposit) - A deposit paid by a potential homebuyer to a realtor upon bid acceptance that indicates their intention to purchase the house.
Easement - A right-of-way given by the owner to allow others access to or over the property.
Encumbrance - Anything that affects title to a property, such as loans, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA) - A federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity - The amount of a property that is actually "owned" by the homeowner, versus the amount still owed on its mortgage.
Equity Loan - A loan taken against a home's equity. In essence, the homeowner is taking out a loan against him or herself, and is repaying into their own mortgage
Escrow - An escrow account is somewhat like a forced savings account, in which a portion of the monthly mortgage payment is set aside by the lender for payment of such expenses as property taxes or hazard insurance. This assures the lender that when these types of payments come due, adequate funds will be available.
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Fair Credit Reporting Act - Federal act to ensure that credit bureaus are fair and accurate protecting the individual's privacy rights enacted in 1971 and revised in October 1997.
Fair Housing Act - A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair Market Value - The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae/Freddie Mac - These institutions are the nation's largest secondary investors in residential mortgages. Referring to the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).
FHA - Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
FICO Score - FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
Fixed Rate Mortgage - A mortgage loan that carries a guaranteed fixed interest rate and payments throughout the life of the loan.
Fixture - Personal property that becomes real property when attached in a permanent manner to real estate, such as shelving, light fixtures, etc.
Forbearance - A lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.
Foreclosure - The process by which a mortgaged property is taken over by the lending institution when the borrower defaults on the loan. The foreclosed property is usually then auctioned off, with the proceeds being applied to the unpaid portion of the loan.
Front End Ratio - A percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions.
Fully Indexed Accrual Rate - The sum of the index plus the margin.
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Ginnie Mae - Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
Good Faith Estimate - An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Government Loan - A government loan is one that is insured by the federal government, through agencies such as the Federal Housing Administration (FHA), or Veterans Administration (VA).
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HECM (Reverse Mortgage) - The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
Hazard Insurance - Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium
Home Equity Line of Credit - A mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.
Home Equity Loan - A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction
Home Inspection - An examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.
Home Warranty - Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure
Homeowner's Insurance - An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.
HUD - The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Statement - Also known as the "settlement sheet," or "closing statement" it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.
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Index - A number used to determine the interest rate for an ARM. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.
Inspection - A thorough review of the home's structural and mechanical condition performed by a qualified home inspector hired by the buyer. A satisfactory home inspection is often included as a contingency in the offer to purchase.
Inquiry - A credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.
Interest - The fee charged by the lending institution for borrowing money.
Interest Rate - The amount of interest charged on a monthly loan payment, expressed as a percentage.
Introductory Rate - An Adjustable Rate Mortgage (ARM Loan) may begin with a discounted, introductory rate. This introductory rate is not to be confused with the fully indexed accrual rate. While an introductory rate might be 6.00%, the fully indexed accrual rate at the same time might actually be 7.50%, or 5.00% index plus 2.50% margin.
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Judgment - A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.
Jumbo Loan - A loan that exceeds the purchase limits established by Fannie Mae and Freddie Mac, also called a non-conforming loan.
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Late Payment Charges - The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.
Lease - A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.
Lender - A term referring to a person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.
Liabilities - A person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.
LIBOR - London Inter Bank Offered Rates. A common index used by financial institutions when determining interest rates. This rate is published in the Wall Street Journal.
Lien - A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.
Line of Credit - An agreement by a financial institution to extend credit up to a certain amount for a certain time to a specified borrower. Often taken against a home's equity.
Loan Origination Fee - A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.
Loan Servicer - The company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.
Loan-to-Value (LTV) - The relationship between the principal balance on the mortgage and the appraised value of the property. For example, a $100,000 home with $80,000 remaining on the mortgage has an LTV of 80%.
Lock - Also called a "rate lock". A commitment by the lender to guarantee a specific interest rate if a mortgage closes within a set period of time (usually 30, 45 or 60 days), after which the guaranteed rate will expire. At the time of application, the borrower is given the option to immediately lock the rate, or "float" the rate to see if a better interest rate will come along. Because interest rates can fluctuate from day to day, it's a good idea to pay close attention to the current market to determine whether or not rates may go up or down.
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Margin - A premium, typically between 2% and 3%, that is added to an ARM's index to establish the loan's actual interest rate.
Market Value - The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
Maturity - The date when the principal balance of a loan becomes due and payable.
Mortgage - A lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the borrower in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
Mortgage Insurance - Insurance for the lender in the event that the borrower defaults on the loan. The cost for mortgage insurance is usually built into the monthly payment made to the lender, and is typically required when the loan has an LTV of 80% or greater (when the down payment is less than 20% of the home's value). This can also be called private mortgage insurance for conventional loans, because a private institution rather than the federal government backs them.
Mortgage Insurance Premium (MIP) - A monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.
Mortgage Interest Deduction - The interest cost of a mortgage, which is a tax - deductible expense. The interest reduces the taxable income of taxpayers.
Mortgage Modification - A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgage Note - A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.
Mortgagee - The lender.
Mortgagor - The borrower.
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Negative Amortization - A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.
Note - A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time.
Note Rate - interest rate stated on a mortgage note.
Notice of Default - A formal written notice to a borrower that there is a default on a loan and that legal action is possible.
Non-Conforming loan - Is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
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Origination Fee - A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points, and is paid at the time of closing. Additional points can also be purchased as a means of reducing the interest rate (see the definition for "points").
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PITI - An acronym for principal, interest, taxes, and insurance, four components that comprise a monthly mortgage payment.
PITI Reserves - The cash amount that the borrower must have on hand after paying the down payment and closing costs as an "emergency" reserve in case of an interruption in their monthly income. The borrower must show proof of this cash reserve, generally two or three months' worth of PITI, or total monthly payments.
PMI - Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
Planned Unit Development (PUD) - A development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner's or neighborhood association. Homeowners usually are required to participate in the association via a payment of annual dues.
Points - The borrower can purchase points in exchange for a lower interest rate. One point is equal to one percent of the loan amount and can decrease the interest rate by 1/8 to 1/4 percent. Before purchasing points, it is important to determine if the up-front cost will justify the long-term savings.
Pre-Approval - A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
Predatory Lending - Abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.
Prepayment - Any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, the pay off the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized.
Prepayment Penalty - A provision in some loans that charge a fee to a borrower who pays off a loan before it is due.
Prime Rate - The interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.
Principal - The portion of your mortgage loan that represents the actual amount borrowed, not including interest.
Purchase and Sale Agreement - The written contract between buyer and seller indicating all terms and conditions of the sale.
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Qualifying Ratios - Equations used to evaluate family income, existing debt and credit history for the purpose of determining the loan amount the borrower qualifies for.
Quitclaim Deed - A deed transferring ownership of a property but does not make any guarantee of clear title.
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Real Estate Settlement Procedures Act (RESPA) - A consumer protection law that requires lenders to give borrowers advance notice of closing costs in the form of a Good Faith Estimate. RESPA also provides guidelines to protect and inform borrowers during the servicing of their mortgage loan.
Real Property - Land, including all the natural resources and permanent buildings on it.
Recording Fees - Charges for recording a deed with the appropriate government agency.
Refinance - The process of paying off one loan with the proceeds from a new loan (usually for a lower interest rate) using the same property as security.
Reverse Mortgage (HECM) - The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
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Second Mortgage - An additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.
Secondary Mortgage Investor - A lending institution that buys and sells existing mortgages, rather than working directly with the consumer.
Servicer - An organization that collects mortgage payments from borrowers and manages their escrow accounts.
Subprime - A term referring to borrowers with a less-than-perfect credit history, also called B&C credit.
Subordinate - To place in a rank of lesser importance or to make one claim secondary to another.
Survey - A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Surveys are conducted by licensed surveyors and are normally required by the lender in order to confirm that the property boundaries and features such as buildings, and easements are correctly described in the legal description of the property.
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Title - The legal document guaranteeing ownership of a piece of property.
Title insurance - Insurance that protects the lender or buyer against loss arising from a dispute over ownership of a piece of property. As with a car, the property may have changed ownership many times before reaching the current buyer, and errors and discrepancies can happen along the way. Title insurance is the lender's way of insuring their interest in the property. The cost for title insurance is paid once, at the closing of the loan.
Title Search - A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Treasury Securities - Treasury bill yields are another index that a lender can use to determine the rate adjustments on ARM loans.
Truth-In-Lending - A federal law that requires lenders to fully disclose, in writing, all costs and terms associated with a mortgage, including the Annual Percentage Rate (APR) and other charges.
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Underwriting - The "behind-the-scenes" process of reviewing a loan application to verify all information given and evaluate the borrower's credit history to determine whether the borrower qualifies for the loan for which they have applied.
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VA (Department of Veterans Affairs) - A federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.
VA Mortgage - mortgage guaranteed by the Department of Veterans Affairs (VA).
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Warranty Deed - A legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.