Acceleration Clause

A clause in your mortgage that allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.


Voluntary agreement to an offer. 

Additional Principal Payment

A payment of principal above the required amount. Some loans limit the amount that a borrower may pay and impose a penalty for reducing the principal balance in too short a time.

Adjustable Rate Mortgage (ARM)

A mortgage that provides for periodic changes in the interest rate, based on changing market conditions.

Adjusted Basis

The value of a property as a capital asset (cost plus additions to value, less depreciation).

Adjustment Date

The date the interest rate changes on an adjustable-rate mortgage.

Adjustment Period

The time between adjustment dates for an adjustable rate mortgage. If the rate adjusted monthly, for example, one month would be the adjustment period.


A person given authority by a proper court to manage and distribute the estate of a deceased person when there is no will. 


A written declaration upon oath made before an authorized official.

Affordability Analysis

A method to determine the right purchase price and mortgage for a potential homebuyer. The price of the home and its future expense, cost to obtain the loan and its future expense, as well as buyer’s income, expenses and assets are used to determine the financial feasibility of the purchase.


Those things that enhance the enjoyment (and therefore the value) of real estate but are not necessary for its intended use. Examples: a scenic view, swimming pool, etc.


The loan payment consists of a portion that will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

Amortization Term

The time required to pay off a mortgage if no additional principal payments are made and all payments are made on schedule. A ten-year loan, for example, would have an amortization term of 120 months (ten years).


To repay a mortgage with regular payments that cover both principal and interest.

Amortization Schedule

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Annual Mortgagor Statement

The yearly statement sent to a borrower showing the remaining loan balance and the interest paid over the year. Used primarily for income tax purposes.

Annual Percentage Rate (APR)

This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.


A specified income payable at stated intervals for a fixed or contingent period, often for the recipient’s life, in consideration of a stipulated premium paid either in prior installment payments or a single payment.  


The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.


A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.

Appraised Value

An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.


An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.


The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Assessed Value

The valuation placed on property by a public tax assessor for purposes of taxation.


The placing of a value on property for the purpose of taxation.

Assessment Rolls

The list of taxable persons and property in a given area as compiled by the assessor.


A public official who establishes the value of a property for taxation purposes.


Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.


When ownership of your mortgage is transferred from one company or individual to another.

Assumable Mortgage

A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.


The term applied when a buyer assumes the seller’s mortgage.

Assumption Clause

The part (clause) of an assumable mortgage that allows a buyer to receive the responsibility for the mortgage from a seller.  

Assumption Fee

Lender’s charge for paperwork involved in processing records for a new buyer assuming an existing loan.


One who is appointed to act (as agent) for another (principal) under a power of attorney. The scope of the agent’s authority is limited to that given by the power of attorney, which may be limited to one specific act or may be broader.

Automated Underwriting

A technology driven underwriting process that provides a computer generated loan decision. The lending industry is broadly migrating to the use of new technology driven loan-underwriting platforms to improve the processing time for all types of loans.


Balance Sheet

A statement of the assets and liabilities of a company to determine its net worth (equity).

Balloon Mortgage

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty-year period but requires that at the end of the tenth year the entire remaining balance must be paid.

Balloon Payment

The final lump sum payment that is due at the termination of a balloon mortgage.


One who is adjudicated a bankrupt by a court having proper jurisdiction. The bankruptcy may be voluntary (petitioned by the bankrupt) or involuntary (petitioned by the creditors of the bankrupt).


By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a “Chapter 7 No Asset” bankruptcy, which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Before-Tax Income

This is the gross amount of income available before considering taxes.


One for whose benefit a trust is created. In states in which deeds of trust are commonly used instead of mortgages, this is the lender.


To give personal property by will.


An improvement to a structure which is not a repair, restoration, or enlargement. For example: the addition of aluminum siding over a frame wall; paving a street adjoining the structure; adding a fireplace or some similar improvement which increases the value of the property.

Bill of Sale

A written document that transfers title to personal property. For example, when selling an automobile to acquire funds that will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.


A report issued by a title insurance company setting forth the condition of title to certain property as of a certain date, and also setting forth conditions which, if satisfied, will cause a policy of title insurance to be issued. Also called a commitment.

Biweekly Mortgages

A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty-year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty-year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment that will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.

Blanket Insurance Policy

A policy covering more than one property. Commonly used by builders of a tract.

Blanket Mortgage

A mortgage covering more than one property of the mortgagor, such as a mortgage covering all the lots of a builder in a subdivision. 

Bona Fide

A legal term that refers to any actions, situations, or persons that are honest, in good faith, and without fraud.


A method of financing long-term debt, issued by a government or private corporation, which bears interest and has priority over stock in terms of security.


Failure to perform a contract, in whole or part, without legal excuse.

Bridge Loan

Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.


Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.


As the word is applied to condominiums and planned developments, the common expenses shared by the unit owners. This will determine the amount each unit will be charged (usually monthly) for expenses of the common area (taxes, insurance, maintenance, etc.).

Budget Category

When creating a budget, there are many different categories to consider.  The most common are: income, housing, savings, utilities, health care, consumer debt, food and groceries, just to name a few.  

Building Code

A comprehensive set of laws that control the construction of buildings, including design, materials used, construction, use, repair, remodeling, and other similar factors.

Buydown Account

The account holding funds to be used to pay additional amounts during the buydown period.

Buydown Mortgage

A payment to the lender from the seller, buyer, third party, or some combination of these, causing the lender to reduce the interest rate during the early years of a loan. The buydown is usually for the first 1 to 5 years of the loan.


Call Option

A clause in your mortgage that allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.


Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six-month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment that can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.


One’s ability to carry on normal business transactions. Lack of capacity may be natural (unsound mind) or simply by law (a minor). Restrictions may be full or partial.


Money used to create income, either as investment in a business or income property.

Capital Expenditure

Money spent on improvements such as land, buildings, machinery, and similar major expenditures that are not inventory.

Capital Improvement

Any structure erected as a permanent improvement to real estate usually extending the useful life and value of a property such as the replacement of a roof.

Cash-Out Refinance

When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as “cash out refinance.”

CD-Indexed (Certificate of Deposit) ARMs

These indexes are averages of the secondary market interest rates on nationally traded Certificates of Deposit. Banks and other financial institutions usually issue the Certificates of Deposit, also known as CDs. They pay a fixed rate of interest for a specific period of time.  The Certificates of Deposit of various maturities, including 1-Month, 3-Month, 6-Month and 1-Year, are used as ARM indexes. The 6-Month Certificate of Deposit (6-Mo CD) is the most popular of the CD indexes.

Certificate of Deposit

A time deposit held in a bank that pays a certain amount of interest to the depositor.

Certificate of Deposit Index

One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

Certificate of Eligibility

A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.

Certificate of Reasonable Value (CRV)

Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Certificate of Title

In areas where attorneys examine abstracts or chains of title, a written opinion, executed by the examining attorney, stating that title is vested as stated in the abstract.

Chain of Title

An analysis of the transfers of title to a piece of property over the years.

Change Frequency

The time between adjustments of interest and payment on an adjustable rate mortgage.

Change Orders

In construction, written instructions to alter the original construction plan.


Personal property.

Clear Title

A title that is free of liens or legal questions as to ownership of the property.


This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.

Closing Agent

Usually works for a title or escrow company, or, in many Eastern states, it may be an attorney. The closing agent is an impartial party to the transaction and is there to provide information and facilitate the transfer of the property from the seller to buyer.

Closing Cost Item

Closing costs include mortgage origination fees, discount points, appraisal fees, and more.

Closing Costs

Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items that are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items that recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate that they must issue to the borrower within three days of receiving a home loan application.

Closing Date

The date on which the buyer pays for the property and the seller delivers the deed.

Cloud on Title

Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.


A surety under a loan. The co-maker is equally responsible for repayment as the borrower (maker).


A sharing of the risk of an insurance policy by more than one insurer. Usually one insurer is liable up to a certain amount, the other liable over that amount.

Coinsurance Clause

A requirement by an insurer that the property owner carry insurance equal to a specified percentage of the value of the property.


In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.


When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.

Commercial Banks

An institution for savings, loans, checking accounts, and other services not all of which are found in savings and loan institutions. Banks are generally more active in construction loans rather than long term real estate financing.


Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.

Commitment Letter

A written promise to make or insure a loan for a specified amount and on specified terms.

Common Area Assessments

In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.

Common Areas

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Common Law

An unwritten body of law based on general custom in England and used to an extent in some states.

Community Land Trust Mortgage Option

A mortgage secured by property for which the title is held by a land trust.

Community Property

In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.

Community Seconds

A junior mortgage subsidized by a state or local government agency or nonprofit organization enabling low to moderate income buyers to purchase a home with less of a down payment. The mortgage will have a below market interest rate and the principal may not have to be repaid if the buyer stays in the home for a certain period. The details of this type of loan vary by location.


Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as “comps.”

Compound Interest

Interest paid on accumulated interest as well as on the principal.


The taking of private property for public use. Consent of the owner is not required but fair compensation must be paid.

Condition of the Home

Although a home inspection is a must, the person performing it doesn’t work for you.  As a result, on your own you should pay attention to plumbing, electrical systems, kitchen appliances, outside, water, and any structural problems with the home prior to purchase.  


A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

Condominium Conversion

Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium Hotel

A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.

Construction Contract

A legal document used in construction project. Usually includes: the contractors registration number, a statement of work quality such as ‘standard practices of the trades’ or ‘according to manufacturers specifications, a set of blue prints or plans, a construction timetable including starting and completion dates, a set of specifications, a fixed price for the work or a time and materials formula, a payment schedule, any allowances, a clause which outlines how any disputes will be resolved, and a written warrantee.

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.

Contingencies for Repairs

You may want to stipulate that the seller is responsible for ensuring the plumbing, heating, mechanical, and electrical systems are in working order at closing.  Without this clause, you agree to accept the house “as is”. 


A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contingency for Clear Title

This is another contingency you can put in your contract that is for the protection of the buyer. Essentially what this contingency provides is the ability for you to review any potential easements or agreements that are on public record that you may not feel comfortable with as a buyer.

Contingency for Financing

A clause in a home purchase and sale agreement that expresses that your offer is contingent on being able to secure financing for the house. Typically a buyer uses this clause to establish a set period of time to apply for a mortgage and/or close on the loan.

Contingency for Personal Property

Don’t rely on the seller’s verbal agreement that specific fixtures, appliances, and personal property are included in the sale. To avoid any misunderstandings or surprises, list on the contract everything that the owner is supposed to leave behind.

Contingency Reserve

An amount of money put aside into a reserve account to allow for unforeseen repairs or losses during renovation of a property.  


An oral or written agreement to do or not to do a certain thing.


A person who contracts to furnish supplies or perform work at a certain price or rate.

Conventional Mortgage

Refers to home loans other than government loans (VA and FHA).

Convertibility Clause

The provision in a convertible adjustable rate mortgage giving the borrower the option of changing to a fixed rate at specified times during the term of the mortgage.

Convertible ARM

An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

Cooperative (co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cooperative Corporation

A corporation that holds the title to a cooperative project and grants occupancy rights to shareholders through leases or similar rental agreements.

Cooperative Mortgages

In conventional mortgages, a buyer borrows money from a financial or housing institution in order to purchase a real physical property that he can put under his name.  In a cooperative mortgage, the company or corporation retains ownership of the property and the borrower takes a share loan to obtain a propriety lease of a certain portion of the property that’s equivalent to the value of his or her shares in the cooperative.

Cooperative Project

A residential or mixed-use building wherein a corporation holds title to the property, sells shares of stock, representing the value of a single apartment, to individuals who then receive a lease, or similar agreement, as evidence of title.

Corporate Relocation

Corporate relocation is a situation in which an employer transfers an employee and pays moving expenses.

Cost of Funds Index (COFI)

One of the indexes that are used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

Costs of Settling Into Your Home

One of the major up-front costs in buying a home is the investment time. In addition to shopping for a home, you also spend time trying to find the best mortgage terms and an attorney who will assist you with the legal issues in purchasing a home.  There are also many additional costs that need to be addressed beforehand.  Making a list early will save you time and money.  


Generally, almost any written agreement. Most commonly in real estate, assurances set forth (expressed) in a deed by the grantor or implied by law.


An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit Bureau

A company that compiles information on a person’s credit history. Also called a Consumer Reporting Bureau.

Credit History

A record of an individual’s repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

Credit Life Insurance

A term life insurance policy for the amount of the declining balance of a loan secured by a mortgage or deed of trust. The beneficiary under the policy is the mortgagee. In the event of death (some policies also cover disability) of the insured (mortgagor), the mortgage is paid in full.

Credit Profile

Also known as a credit report, it can impact whether you’re approved for loans, and at what terms.  It could even be a factor in where you rent a house or apartment.  

Credit Report

A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

Credit Report Fee

Mortgage-related pulls within a 45-day period will typically count as one pull (for scoring purposes). Credit report fees may range from $30 to $50 per report, though some lenders cover the cost themselves.

Credit Reporting Agency

A business that maintains historical credit information on individuals and businesses. They receive reports from lenders and various other sources that are compiled in a credit report that includes a credit score when issued. They may also be referred to as a credit-reporting bureau.

Credit Repository

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Credit Scoring

A means by which the lender makes a determination regarding the creditworthiness of potential borrowers; involves a lender assigning a numerical value to different aspects relating to a borrower’s financial situation.

Credit Unions

A non-profit financial institution owned and operated entirely by its members.  By depositing money in a credit union, the depositor becomes a member and has partial ownership in the institution.


A person to whom money is owed.



An amount owed to another. 


Any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale.

Deed of Trust

An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and re-conveyed upon payment in full.


Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.


Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.


Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

Department of Veterans Affairs

Formerly the Veterans Administration.


A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”


A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term that shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.

Detached Single-Family Home

Not connected to. A house with a detached garage, for example, would have no direct access from one to the other.

Direct Leveraging Loan Program

Leveraging reduces the loan amount the Agency must provide to help an applicant obtain adequate housing. The additional funding source may be a private lender that provides home financing at market rates and terms, a State or local government, or a nonprofit organization that provides subsidized loans or grants.

Discount points

In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.


A common law interest of a wife in the property of her deceased husband. Being changed in many states by statute to give more equality between men and women in property rights.

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 Provision

A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

Due-on-transfer Provision

A type of acceleration clause, calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property. Also called a “due-on-sale” clause.


Earnest Money Deposit

A deposit made by the potential homebuyer to show that he or she is serious about buying the house.


A right of way giving persons other than the owner access to or over a property.

Effective Age

An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective Gross Income

Total income of property if fully rented, less an adjustment for estimated vacancies and uncollectible rent.

Eminent Domain

The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.


An improvement that intrudes illegally on another’s property.


Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.


One who transfers a check or mortgage note by signing (endorsing) the check or note rather than by a separate document (assignment). The transferee may receive greater rights by endorsement than by assignment.

Equal Credit Opportunity Act (ECOA)

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


A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

Errors in Credit Report

When reviewing your credit report, check that it contains only items about you.  Be sure to look for information that is inaccurate or incomplete.  Some common errors to be mindful of are: identity errors, incorrect reporting of account status, date management errors, and balance errors.  If you find errors, you should contact the credit reporting company who sent you the report, and the creditor or company that provided the information (called the “furnisher” of the information). Your credit report includes directions about how to dispute inaccurate or incomplete information or you can use our sample dispute letters for furnishers and credit reporting companies .


An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Escrow Account

Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow Analysis

Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow Collections

Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

Escrow Disbursements

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Payment

The escrow payment on a mortgage statement refers to the monies collected monthly to later pay for property taxes and homeowners insurance. The borrower makes an escrow payment at specified times, and the lender or mortgage servicing company is responsible for disbursing payments in full when they are due.

Establishing a Credit Report

If you’ve established that you definitely don’t have a credit history or if a short history hasn’t been enough to get you approved for a traditional credit card, here are some of your options. Get a card through the bank where you do your checking, apply for a store credit card, or finance a store purchase with a same-as-cash offer.


The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.


The lawful expulsion of an occupant from real property.

Examination of Title

The report on the title of a property from the public records or an abstract of the title.

Exclusive Listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.


A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.


Fair Credit Reporting Act

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

Fair Market Value

The highest price that a buyer, willing but not compelled to buy would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA)

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. 

Federal Housing Administration (FHA)

An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

Fee Simple

The greatest possible interest a person can have in real estate.

Fee Simple Estate

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA Coinsured Mortgage

A mortgage for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the borrower’s default.

FHA Loans

A mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate income borrowers, FHA loans require lower minimum down payments and credit scores than many conventional loans.

FHA Mortgage

A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

Final Walk-Through Inspection

Final walk-throughs are not home inspections, even though it might seem that way. … A final walk-through is an inspection performed anywhere from a few hours to a few days before settlement of the transaction. Its primary purpose is to make certain that the property is in the condition you agreed to in which to buy it.

Financial Index

ARM (adjustable-rate mortgage) index is the benchmark interest rate to which an adjustable rate mortgage is tied. An adjustable-rate mortgage’s interest rate consists of an index value plus a margin. The index underlying the adjustable-rate mortgage is variable, while the margin is constant. There are several popular indexes used for different types of adjustable-rate mortgages.

Finders Fee

A fee paid to someone who finds a buyer or property for a broker, buyer, etc. The term is sometimes used to attempt to pay a commission to an unlicensed person. Generally, a finder’s fee is considered a commission and may only be paid to one who holds a real estate license.

Firm Commitment

A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage

The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed Installment

A payment, usually monthly, not subject to change.

Fixed-Period Adjustable-Rate Mortgages

A fixed-period ARM is an adjustable-rate mortgage with an initial fixed-interest-rate period. After the fixed-interest rate expires, the interest rate starts to adjust based on an index plus a margin. The amount by which the interest rate can adjust after the fixed period is usually subject to an interest rate cap structure. 

Fixed-Rate Mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.


Personal property that becomes real property when attached in a permanent manner to real estate.

Flood Insurance

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.


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.


The taking of an individual’s property by a government, because the individual has committed a crime.

FSBO (For Sale by Owner)

An attempt to sell property without using an agent.

Fully Amortized ARM

A loan of equal, regular payments that cause the principal and interest to be completely paid by the due date.


General Contractor

One who contracts for the construction of an entire building or project, rather than for a portion of the work. The general contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the said subcontractors.

Good Faith Estimate

An estimate of all closing fees including pre-paid and escrow items as well as lender charges.

Government Mortgage

A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)


The person to whom an interest in real property is conveyed.


The person conveying an interest in real property.

Ground Rent

Rent paid for vacant land. If the property is improved, ground rent is that portion attributable to the land only.

Group Home

A residential facility in a residential zone for three or more unrelated people (i.e., foster homes, rehabilitation centers, and halfway houses).

Growing-Equity Mortgage (GEM)

A fixed rate, graduated payment loan allowing low beginning payments and a shorter term because of higher payments as the loan progresses. Based on the theory of increasing income by the buyer and, therefore, ability to make higher future payments. When state law applies, usury laws in some states may not presently allow such loans when less than interest only payments create interest on interest.

Guarantee Mortgage

A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure. May be insured by F.H.A., V.A., or by independent mortgage insurance companies.

Guaranteed Loan

A guaranteed loan is a loan guaranteed by a third party in case the borrower defaults. Sometimes, a guaranteed loan is guaranteed by a government agency, which will purchase the debt from the lending financial institution and take on responsibility for the loan. 


Hazard Insurance

Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

Home Equity Conversion Mortgage (HECM)

Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older homeowners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

Home Equity Line of Credit

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home Inspection

A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

Homeowners Association

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.

Homeowners Insurance

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowners Warranty

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Home Style Construction-to-Permanent Mortgage

This type of mortgage is available for a home that you will live in as your primary residence, as well as certain other properties. You can borrow money to build a home from the ground up, or to finish building a home that is currently under construction.  This type of loan finances you from construction through the purchase stage. 

Home Style Mortgage Loan

A government-backed loan that allows qualified borrowers to add extra money for remodeling or improvements to an initial home purchase mortgage or a mortgage refinancing.

Housing Expense Ratio

This is the percentage of gross monthly income that goes toward paying housing expenses. The relationship of total monthly housing expense to income, expressed as a percentage: Total Housing Expense ÷ Income = Ratio %.

HUD Median Income

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 Statement

A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.”


In-File Credit Report

Issued by a credit repository and contains “as is” information, which is information that has not been updated or re-verified as a result of a credit inquiry.

Income Property

Property that produces income, usually from rental. May also include any property not entirely owner occupied.


An index used to adjust the interest rate of an adjustable mortgage loan. For example: the change in U.S. Treasury securities (T-Bills) with a 1-year maturity. The weekly average yield on said securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the “index” for the change in the specific Adjustable Mortgage Loan.


The expanse or increase in an economy over its natural growth. Usually caused by over printing money and over-extending credit. Marked by a rapid increase in the price of goods.

Initial Interest Rate

The beginning interest rate on an adjustable rate loan. It may be much lower than the actual interest rate and only last for a few months.


The periodic payments, usually monthly, made by a borrower.

Installment Loan

A loan for a specific amount of money that is repaid with interest through a series of fixed monthly payments. The interest rate may depend on the financial history of the applicant and loan size and repayment terms can range from a few months to over 30 years. Installment loans can be unsecured or secured by personal property and other forms of collateral.

Insurable Title

Fee title (ownership) to property free of defects. There may, and usually are, liens and encumbrances.


A contract under which, for a consideration, one party (the insurer) agrees to indemnify another (the insured) for a possible loss under specific conditions. May be loss of life, health, property, or property rights.

Insurance Binder

Temporary insurance until a more permanent policy can be written.

Insured Mortgage

A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure. May be insured by F.H.A., V.A., or by independent mortgage insurance companies.


Money charged for the use of money (principal).

Interest Accrual Rate

The percentage rate at which interest accrues based on the terms of the note. Example: A fixed rate loan of 6% per year would have an accrual rate of 6%. An adjustable rate loan would have an accrual rate based on the formula for determining interest.

Interest Rate

The percentage of an amount of money that is paid for its use for a specified time. Usually expressed as an annual percentage.

Interest Rate Buydown Plan

A payment to the lender from the seller, buyer, third party, or some combination of these, causing the lender to reduce the interest rate during the early years of a loan. The buydown is usually for the first 1 to 5 years of the loan.

Interest Rate Ceiling

The highest rate that can be charged on an adjustable rate mortgage. Also called a Cap.

Interest Rate Floor

The lowest rate that can be charged on an adjustable rate mortgage if interest rates go down. Not all adjustable rate loans allow rates to go below the beginning rate.

Interest Rate for HECMs

Home Equity Conversion Mortgages (HECM) are the most common type of reverse mortgage. HECM interest rates can vary depending upon purpose of the loan and whether the homeowner selects a fixed or variable rate product.

Interest-First SM Mortgage

Freddie Mac uses Home Possible Advantage (SM), an affordable conforming, conventional mortgage with a three percent down payment requirement designed to make responsible homeownership accessible to more first-time buyers and other qualified borrowers with limited down payment savings.

Investment Property

Generally, any property purchased for the primary purpose of profit. The profit may be from income or from resale.

IRA (Individual Retirement Account)

Savings programs available to individuals. These plans allow for a certain amount to be deposited each year. This money is not subject to income tax for that year or following years as long as it is not withdrawn. The money is taxed as withdrawn upon retirement, usually when the depositor is in a lower tax bracket. During the life of the account, the money may be put into various interest bearing investments. Securities dealers as well as banking institutions now offer IRA’s.


Joint Tenancy

A form of ownership or taking title to property that means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.


A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

Judgment Lien

A lien against the property of a judgment debtor. An involuntary lien.

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. Other states use non-judicial foreclosure.

Jumbo Loan

A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, currently at $227,150. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.


Late Charge

A penalty for failure to pay an installment payment on time. Usually not allowed as interest for tax deductions. May or may not be included as usury. If not, the amount of late charge is either set by statute or must be “reasonable”.


A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.

Lease-Purchase Option

An alternative financing option that allows homebuyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent, but also an additional amount that can be applied toward the down payment on an already specified price.

Leasehold Estate

A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Legal Description

A property description, recognized by law that is sufficient to locate and identify the property without oral testimony.


A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Liability Insurance

Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner’s insurance policy.

LIBOR-based ARMs

An adjustable rate mortgage (ARM) has a rate that can change, causing your monthly payment to increase or decrease. LIBOR, which stands for the London Interbank Offered Rate, is an index set by a group of London based banks, and sometimes used as a base for U.S. adjustable rate mortgages.


A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.

Lifetime Payment Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

Lifetime Rate Cap

The limit (cap) that the interest rate can adjust over the life of an adjustable rate loan.

Line of Credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid Asset

A cash asset or an asset that is easily converted into cash.

Lis Pendens

A legal notice recorded to show pending litigation relating to real property, and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.


A sum of borrowed money (principal) that is generally repaid with interest.

Loan Application

The form on which the borrower supplies the lender’s required information to determine if the applicant is qualified to receive a loan. It normally identifies the property involved and details the applicant’s income, expenses and assets. Credit and property value are determined separately by a credit report and appraisal.

Loan Commitment

A written promise to make or insure a loan for a specified amount and on specified terms.

Loan Limit

The Federal Housing Finance Agency (FHFA) publishes annual conforming loan limits that apply to all conventional mortgages delivered to Fannie Mae, including general loan limits and the high-cost area loan limits. High-cost area loan limits vary by geographic location.

Loan Origination

How a lender refers to the process of obtaining new loans.

Loan Origination Fee

A one time set up fee charged by the lender.

Loan Terms and Conditions

The conditions on which the mortgage is made including the rate and the length of the repayment period.

Loan-to-Value (LTV) Percentage

The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).


An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Lock-In Period

The time period during which the lender has guaranteed an interest rate to a borrower.


Manufactured Housing

A structure built in a factory and assembled at the site. The term is also used to describe a mobile home. See also: Stick Built Home. A manufactured home is built using more metal and less wood and brick than a stick built home. Manufactured homes are less expensive than comparable stick built structures.


The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index that moves up and down.

Market Value

The highest price a willing buyer would pay and a willing seller accept, both being fully informed, and the property exposed for a reasonable period of time. The market value may be different from the price a property can actually be sold for at a given time.

Master Association

In a multi phase condominium or planned unit development project there may be homeowners’ associations that are concerned with specific areas of the project. The Master Association oversees these associations and handles matters affecting the entire project.


The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Maximum Claim Amount

The maximum dollar amount FHA will insure for a HECM reverse mortgage. MCA is equal to either the appraised value of the property or the current FHA lending limit, whichever is less.

Maximum Financing

The maximum allowable ratio of loan-to-value (LTV) on any loan program.  Generally, these are set by mortgage insurers or by lenders and can range up to 100%, although some programs will go above 100%.

Merged Credit Report

A credit report that reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.


Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification.

Money Market Account

An interest-bearing account that typically pays a higher interest rate than a savings account, and which provides the account holder with limited check-writing ability. A money market account thus offers the account holder benefits typical of both savings and checking accounts.

Money Market Fund

Funds that invest in the “Money Market”, a variety of interest bearing securities such as treasury bills and bank certificates of deposit. None is invested directly into real property or real property securities.

Monthly Fixed Installment

A monthly payment of principal and interest not subject to change.

Monthly Payment Mortgage

A regularly scheduled payment which includes principal and interest paid by borrower to lender of home loan. The payment amount may or may not include real estate taxes and property insurance. The principal portion is used to pay off the original loan amount; the interest is paid to the lender.


A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.

Mortgage Banker

For a more complete discussion of mortgage banker, see “Types of Lenders.” A mortgage banker is generally assumed to originate and fund his or her own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.

Mortgage Broker

A mortgage company that originates loans then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

Mortgage Insurance

Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves “No MI” are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

Mortgage Insurance Premium (MIP)

The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Mortgage Life Insurance

A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage-Related Closing Costs

Some closing costs you can expect fall under the following categories: property-related, loan-related, mortgage insurance, property taxes and insurance, and title fees.  


The party lending the money and receiving the mortgage. Some states treat the mortgagee as the “legal” owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, the mortgagor being the owner. The latter is the more modern and accepted view.


The borrower in a mortgage agreement.

Multi-dwelling Units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multifamily Mortgage

A loan secured by a mortgage on a residence consisting of more than four units.


Negative Amortization

Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called “deferred interest.” The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

Net Cash Flow

When the income from an investment property does not equal expenses. The owner must come up with cash each month to meet these expenses.

No Cash-Out Refinance

A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a “rate and term refinance.”

Non-Liquid Asset

Those assets (things owned by a person) that cannot quickly be converted to cash. 


A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Note Rate

The interest rate stated on a mortgage note.

Notice of Default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.


Occupancy Date

The date that a tenant may occupy, or commence operations in, a leased premises. These terms have different legal and practical meanings. A lease must be legally consummated in order for a contract of occupancy to become a lease.


A presentation or proposal for acceptance, in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

One-Year Adjustable-Rate Mortgage

A loan with a fixed rate for the first year that has a rate that changes yearly for the remaining life of the loan. Because the interest rate can change after the first year, the monthly payment may also change.

Ongoing Costs

Costs that homeowners will need budget in are mortgage payments, property taxes, homeowners insurance, hazard insurance, condo, co-op, or homeowners association fees, utilities, routine maintenance, pool, and yard care.  This isn’t an exhaustive list but it’s still a great starting point.  

Original Principal Balance

The total amount of principal owed on a mortgage before any payments are made.

Origination Fee

On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called “discount points.” One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

Other Buyer Costs

Additional costs buyers should be aware of are private mortgage insurance, title insurance, appraisal fees, escrow fees, points of origination fees, credit report fees, document preparation fees, survey fee, property taxes, state recording fees, and pest or mold inspection.

Other Contingencies

Common purchase contract contingencies for home buyers are: appraisal, loan contingency, home, lead based paint, pest, roof, sewer, radon mold or asbestos, and private well inspections, early occupancy agreements, preliminary title report, Homeowner Association disclosures, and seller statutory disclosures.  

Other Financial Companies

Other financial companies include: commercial banks, investment banks, insurance companies, brokerages, investment companies, unit investment trusts, face amount certificates, management investment companies, nonbank financial institutions, savings and loans, credit unions, and shadow banks.   

Owner Financing

A property purchase transaction in which the property seller provides all or part of the financing.


Partial Payment

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

Payment Change Date

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

Periodic Payment Cap

For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one-adjustment period.

Periodic Rate Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one-adjustment period, regardless of how high or low the index might be.


An official approval issued by the local governmental agency that allows you or your contractor to proceed with a construction or remodeling project on your property. It is intended to ensure that the project plans to comply with local standards for land use, zoning, and construction. These standards are intended to ensure the safety of current and future owners and occupants and to provide enforcement of zoning and land use policies.

Personal Property

Any property that is not real property.


This stands for principal, interest, taxes and insurance. If you have an “impounded” loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

PITI Reserves

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

Planned Unit Development (PUD)

A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.


A point is 1 percent of the amount of the mortgage.

Power of Attorney

A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.


A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.


A method by a lender allowing a prospective homebuyer to determine how much may be borrowed on a mortgage loan before making a formal application. This enables the buyer to approximate the price range for the home purchase.

Prearranged Refinancing Agreement

An arrangement between a borrower and lender to refinance a loan at a later date. A construction loan, for example, could be refinanced to a long-term loan.

Pre-foreclosure Sale

A sale under which a lender allows a borrower to avoid foreclosure by selling the mortgaged property for an amount less than the amount necessary to pay off the mortgage loan.


Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

Prepayment Penalty

A fee that may be charged to a borrower who pays off a loan before it is due.

Prime Rate

The interest rates that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.


The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.  See remaining balance.

Private Mortgage Insurance (PMI)

Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Promissory Note

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

Public Auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

Purchase and Sale Agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Money Transaction

A transaction in which property is acquired through the exchange of money or something of equivalent value.


Qualifying Guidelines

To qualify for a home loan you will need a credit score of at least 580. 2 years of consistent verifiable income with w2’s and tax returns. You will also need a down payment, however there are several low down and no down payment loan options available.

Qualifying Ratios

Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The “top” or “front” ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The “back” or “bottom” ratio includes housing costs as will as all other monthly debt.

Quitclaim Deed

A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made. 



A gas in soil that can enter a structure and cause health problems for the occupants. Since radon is odorless, colorless and tasteless, a test must be run to determine its presence.

Rate Caps

The limit (cap) of the amount of interest increase or decrease of an adjustable rate loan.

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 at a specific cost.

Rate-Improvement Mortgage

A fixed rate mortgage under which the interest rate will go down if rates should fall. The loan is offered when rates appear to be falling. The borrower usually can request the rate reduction only once, during the first few years of the term of the loan.

Ratified Sales Contract

It refers to a contract in which the terms have been agreed upon by all parties but has not yet been fully executed, signed, and delivered.

Real Estate Agent

A person licensed to negotiate and transact the sale of real estate.

Real Estate Attorney

Real estate attorneys, or lawyers, are legal professionals who specialize in the legal aspects of buying and selling real estate properties. Lawyers can assist in many transactions associated with the transfer of property.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.


A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of REALTORS®.


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.”


The act of putting a real estate document into the official records at the County Recorders or Recorder of Deeds Office. Usually, the types of documents that are recorded affect title to real property such as a deed, mortgage, easement, judgment, lien, foreclosure, or request for notice of default.

Refinance Transaction

The process of paying off one loan with the proceeds from a new loan using the same property as security.

Rehabilitation Escrow Account

When the loan is closed, the proceeds designated for the rehabilitation or improvements, including the contingency reserve, are to be placed in an interest bearing escrow account insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This account is not an escrow for the paying of real estate taxes, insurance premiums, delinquent notes, ground rents or assessments, and is not to be treated as such. The net income earned by the Rehabilitation Escrow Account must be paid to the mortgagor. The method of such payment is subject to agreement between mortgagor and mortgagee. 

Rehabilitation Mortgage

A loan secured by a mortgage used both to purchase property and make repairs and improvements. It may be more than 100% of the appraised value.

Remaining Balance

The amount of principal that has not yet been repaid.  See principal balance.

Remaining Term

The original amortization term minus the number of payments that have been applied. 

Rent Loss Insurance

Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

Rent with Option to Buy

A rent-to-own agreement means an owner has promised to sell their property to a tenant for a pre-determined price within a certain time frame. Usually, a portion of rent payments will go toward the purchase price or buyer’s closing costs associated with the transaction. When the buyer signs a rent-to-own contract, they agree to rent the property for a specific amount of time before buying the property when the lease expires.

REO (Real Estate Owned)

Most commonly refers to property owned by a lender from foreclosure of mortgages or trust deeds. This property is usually for sale.

Repayment Plan

An arrangement made to repay delinquent installments or advances.

Replacement Reserve Fund

A fund set aside for replacement of common property in a condominium, PUD, or cooperative project – particularly that which has a short life expectancy, such as carpeting, furniture, etc.


Annulling or abrogating a contract and placing the parties to it in a position as if there had not been a contract.

Reverse Mortgage Counseling

HUD certifies housing counselors around the country to provide homeowners with impartial education about reverse mortgages. Reverse mortgage counseling is a mandatory part of the reverse mortgage application process and is typically completed just after completing an application for a reverse mortgage.

Revolving Liability

A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

RHS Loans

A type of financing made by or guaranteed by the United States Department of Agriculture Rural Housing Service (RHS). The RHS lends both directly to low-income borrowers in rural areas and guarantees loans that meet RHS requirements made by approved lenders.

Right of First Refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Right of Ingress or Egress

The right to enter or leave designated premises.

Right of Survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Rural Housing Service (RHS)

An agency of the U.S. Department of Agriculture that helps rural communities and individuals by providing loans and grants for housing and community facilities. It provides funding for single family homes, apartments for low-income persons or the elderly, housing for farm laborers, childcare centers, fire and police stations, hospitals, libraries, nursing homes, schools and other services.



A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

Savings and Loans

Originally an association chartered to hold savings and make real estate loans. Federally insured and regulated. Active in long term financing rather than construction loans. Recent changes in federal controls have enabled these associations to offer checking accounts, consumer loans, and other services traditionally offered by banks.

Second Mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Secondary Mortgage Market

The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.

Secured Loan

A loan that is backed by collateral.


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

Seller Take-Back

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

Seller Versus Buyer Closing Costs

On average closing costs run between 2%-5% of the purchase price. However, the buyer is not the only party that must pay fees at closing. Sellers must pay for both their real estate agent’s, and the buyer’s agent’s commission that is typically 6% of the sales price.


An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.


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


Conveyance of a property to its purchaser and (in case of a mortgage) recording of the lender’s lien. 

Settlement Sheet

A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale. A separate statement is prepared for the seller and buyer.

Short Sale

A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale. A separate statement is prepared for the seller and buyer.

Single-Family Properties

A general term originally used to distinguish a house designed for use by one family from an apartment house. More recently, used to distinguish a house with no common area from a planned development or condominium.

Six-Month Adjustable-Rate Mortgage

An ARM that entails a low interest rate for the first six months, then adjusts every six months after that.  Usually a six-month adjustable rate mortgage will have a one percent periodic adjustment cap.

Special Deposit Account

A specific type of account that borrowers are typically required to use when handling construction funds that are disbursed through a rehabilitation mortgage. Funds that are deposited into the special deposit account are used to pay building contractors and sub-contractors as work is completed.

Standard Payment Calculation

The monthly payment required to repay the remaining balance of a mortgage in equal installments over the remaining term of the mortgage at the current interest rate.

Step-Rate Mortgage

A mortgage or deed or trust calling for increasingly higher payments over the term of the loan. This allows the buyer low beginning payments. The payments then increase as (theoretically) the buyer’s earnings increase.


A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Subordinate Financing

Any mortgage or other lien that has a priority that is lower than that of the first mortgage.


Referring to credit or loan arrangements for borrowers with a poor credit history, typically having unfavorable conditions such as high interest rates.

Subsidized Second Mortgage

A subordinate loan issued to a select group such as firefighters, police, teachers or low-income borrowers. It may be issued by a state or local government agency or by a nonprofit organization. The mortgage has a low interest rate and may even be forgiven under certain circumstances. Also called a Community Second Mortgage.


A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Sweat Equity

Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.


Taxes and Insurance

Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

Tenancy by the Entirety

A form of ownership by husband and wife whereby each owns the entire property. In the event of the death of one, the survivor owns the property without probate.

Tenancy in Common

As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.


A person who is a stockholder in a cooperative housing corporation, and a tenant under a proprietary lease or occupancy agreement.  

Termite Inspection

An inspection required in certain types of sales of property, to determine if termites are present within a building.

Third-Party Origination

A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.


A savings and loan association, savings bank, or credit union.


A legal document evidencing a person’s right to or ownership of a property.

Title Company

A company that specializes in examining and insuring titles to real estate.

Title Insurance

Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

Title Search

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Total Expense Ratio

A formula to determine eligibility for a loan by figuring, as a percentage, all of the borrower’s monthly obligations divided by gross monthly income. 


Originally a house in a city as opposed to a country estate. More recently the term is applied to certain types of row houses, whether planned unit developments or condominiums.

Trade Equity

The making of a down payment with property instead of cash.

Transfer of Ownership

Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.

Transfer Tax

State or local tax payable when title passes from one owner to another.

Treasury Index

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.


A fiduciary who holds or controls property for the benefit of another.


Also referred to as Regulation Z. Part of the Consumer Credit Protection Act. Federal legislation designed to protect borrowers by requiring lenders to furnish information regarding the cost of the loan. The law requires interest to be expressed as the annual percentage rate (APR) to the nearest 1/8 of one percent. The APR must include charges such as loan fees, discount points, servicing fees, etc., as well as interest. The law applies to 1 to 4 family residential properties only. Also applies to other consumer loans.

Two-Step Mortgage

An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

Two-to Four-Family Property

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.



The process of analyzing both the worthiness of a potential borrower and the property involved to enable a lender to decide whether to make a loan, the amount to lend and how much to charge in interest and fees.

Unsecured Loan

Generally referring to an obligation that has only a promise as security. A note would be unsecured, a note and mortgage would be secured.


VA Mortgage

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


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.

Veterans Administration (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.


Ways of Obtaining a Loan

You can meet with a mortgage lender and get pre-qualified at any time.  A pre-qualification simply means the lenders think that, based on your credit score, income, and other factors, you should be able to get approved for a mortgage.  It’s informal and totally non-binding.  You can meet with a local bank, credit union, or mortgage broker.  Or you can even get pre-approved online from any number of national online mortgage lenders.  Most sellers will want to see a pre-approval within a couple days of receiving your offer. 

What-If Analysis

An exploration of the possible future circumstances of a potential buyer or borrower. For example: If you were off work for six months, would you lose your home? Useful in determining if you are financially sound enough to face possible future financial reverses.

What-If Scenario

Decision-making is a crucial part of home buying.  Using tools like Excel allows you to run reverse calculations, sensitivity analysis, and scenario comparisons. When you can take decisions, which are informed based on data, the outcome of the purchase decision is always more in control.  Excel’s what-if-analysis is made up of goal seek, data table, and scenario manager.    

Wraparound Mortgage

A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgagee under the wrap-around collects a payment based on its face value and then pays the first mortgagee. It is most effective when the first has a lower interest rate than the second, since the mortgagee under the wrap-around gains the difference between the interest rates, or the mortgagor under the wrap-around may obtain a lower rate than if refinancing.