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203(b): FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.

203(k): This FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.

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A

Acceleration Clause: A provision in a mortgage note that gives a lender the right to demand repayment of the entire balance of the loan under certain conditions, such as the failure to make timely payments or a transfer of the property.

Additional Principal Payment: An amount paid by a borrower of more than the scheduled principal amount due. This type of payment reduces the remaining balance and shortens the term of the loan. Also called a "principal curtailment."

Adjustable Rate Mortgage: a mortgage loan subject to changes in interest rates also known as an ARM. When rates change, ARM monthly payments increase or decrease at set intervals as determined by the terms of the mortgage. Typical ARMs have an initial period during which the rate is fixed followed by rate adjustments every six to twelve months depending on the type of ARM.

Adjustment Date: The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period: For an adjustable rate mortgage, the time period between interest rate change dates, as stated in the mortgage note.

Affordability Analysis: An estimation of a borrower's ability to afford the purchase of a home and/or the payment on a loan. An affordability analysis may consider income, liabilities, the type of mortgage, the loan amount, purchase price, the expected closing costs, and other factors.

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

Amortization: The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.

Amortization Schedule: A timetable for payment of a mortgage loan. An amortization schedule shows: the amount of each payment; the amount to be applied to principal and interest; and the remaining principal balance after each payment is made.

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

Annual Percentage Rate: calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate. It includes the interest, points, mortgage insurance, and other fees associated with the loan.

Annuity: An amount paid yearly or at other regular intervals, often at a guaranteed minimum amount. Also, a type of insurance policy in which the policy holder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company.

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

Appraisal: a document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property and is based on a number of factors including condition of the property, a comparison to similar homes in the area and recent property sales trends.

Appraiser: a qualified individual who is usually required to be licensed or regulated by state authorities who uses his or her experience and knowledge to prepare the appraisal estimate.

Appreciation: An increase in the value of an item (e.g., the increase in the market value of real estate).

APR: see Annual Percentage Rate

ARM: see Adjustable Rate Mortgage

Assessed Value: Typically the value placed on property for the purpose of taxation.

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

Asset: Anything of monetary value that is owned by a person or company. Assets include real property, personal property, stocks, mutual funds, etc.

Assignment of Mortgage: A document evidencing the transfer of ownership of a mortgage from one person to another.

Assumable Mortgage: A mortgage loan that can be taken over (assumed) by the buyer when a home is sold. An assumption of a mortgage is a transaction in which the buyer of real property takes over the seller's existing mortgage; the seller remains liable unless released by the lender from the obligation. If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender's consent.

Assumption Fee: A fee a lender charges a buyer who will assume the seller's existing mortgage.

Automated Underwriting: An automated process performed by a technology application that streamlines the processing of loan applications and provides a recommendation to the lender to approve the loan or refer it for manual underwriting.

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B

Balance Sheet: financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage: A mortgage in which the borrower's monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.

Balloon Payment: The final lump sum payment that is made at the maturity date of a balloon mortgage.

Bankruptcy: A legal proceeding that allows debtors to eliminate or restructure debts when they have financial difficulties.

Before-Tax Income: Income before taxes are deducted. Also known as "gross income."

Biweekly Payment Mortgage: A mortgage with payments due every two weeks (instead of monthly).

Bona fide: In good faith, without fraud.

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

Bridge Loan: A short-term loan secured by the borrower's current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a "swing loan."

Broker: An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker. See also "Mortgage Broker"

Building Code: Local regulations that set forth the standards and requirements for the construction, maintenance and occupancy of buildings. The codes are designed to provide for the safety, health and welfare of the public.

Budget: a detailed record of all income earned and spent during a specific period of time.

Buydown: An arrangement whereby the property developer or another third party provides an interest subsidy to reduce the borrower's monthly payments typically in the early years of the loan.

Buydown Account: An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

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C

Cap: For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease. See also "Lifetime Payment Cap," "Lifetime Rate Cap," "Periodic Payment Cap," and "Periodic Rate Cap"

Cash reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Cash-out Refinance: A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens.

Certificate of Deposit: A document issued by a bank or other financial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specified interest rate within a specified time period.

Certificate of Eligibility: A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran's eligibility for a VA-guaranteed mortgage loan.

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.

Chain of Title: The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Orders: A change in the original construction plans ordered by the property owner or general contractor.

Clear Title: Ownership that is free of liens, defects, or other legal encumbrances.

Closing: The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as "escrow," a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions. Also see "Settlement"

Closing Agent: The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) Typically the closing is conducted by title companies, escrow companies or attorneys.

Closing Costs: The fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney's fee, and prepaid items, such as escrow deposits for taxes and insurance.

Closing Date: The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

Closing Statement: See "HUD-1 Settlement Statement"

Co-borrower: Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.

COFI: see Cost of Funds Index

Collateral: An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan agreement.

Collection: The efforts a lender takes to collect past due payments.

Commission: The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).

Commitment Letter: A binding offer by a lender to loan money at a future date subject to the borrower's compliance with stated conditions.

Common Areas: Those portions of a building, land, or improvements and amenities owned 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.

Comparables: An abbreviation for "comparable properties," which are used as a comparison in determining the current value of a property that is being appraised.

Condominium: A real estate project in which each unit owner holds title to an individual unit in a building, and an undivided interest in the common areas.

Construction Loan: A loan for financing the cost of construction or improvements to a property; the lender disburses payments to the builder at periodic intervals during construction.

Contingency: A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.

Conventional Mortgage: A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as FHA, VA or RHS. Contrast with "Government Mortgage."

Conversion Option: A provision of some adjustable-rate mortgage (ARM) loans that allows the borrower to change the ARM to a fixed-rate mortgage at specified times after loan origination.

Convertible ARM: An adjustable-rate mortgage (ARM) that allows the borrower to convert the loan to a fixed-rate mortgage under specified conditions.

Cooperative (Co-op) Project: A project in which a corporation holds title to a residential property and sells shares to individual buyers, who then receive a proprietary lease as their title.

Cost of Funds Index (COFI): An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the weighted monthly average cost of deposits, advances, and other borrowings of members of the Federal Home Loan Bank of San Francisco.

Credit Bureau: An independent agency that gathers and maintains information on the debts and repayment records of individuals and businesses.

Credit History: A record of an individual's debts and repayment record. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Life Insurance: A type of insurance that pays off a specific amount of debt or a specified credit account if the borrower dies while the policy is in force.

Credit Report: A document provided by a credit reporting agency containing information about an individual's previous mortgage history, bank loans, credit cards, and public records dealing with financial matters.

Credit Score: A numerical value that ranks a borrower's credit risk at a given point in time based on a statistical evaluation of information in the individual's credit file that has been proven to be predictive of loan performance.

Creditor: A person to whom money is owed.

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D

Debt-to-income ratio: a comparison of gross income to housing and non-housing expenses such as monthly credit card and other loan payment obligations usually expressed as a percentage also known as DTI. In order to qualify for the best rates, that percentage should be as low as possible with 29-41% typically being the highest allowable percentages for these types of loans.

Debt: An amount owed to another.

Deed: The legal document conveying title to a property (i.e., transferring the ownership of real property from one party to another.)

Deed-in-Lieu of Foreclosure: The transfer of title from a borrower to the lender to satisfy the mortgage debt and avoid foreclosure. Also called a "voluntary conveyance."

Deed of Trust: A legal document that conveys title to real estate to a disinterested third party (a "trustee") who holds the title until the borrower has repaid the debt. In some states, this document is used in place of a mortgage.

Delinquency: Failure to make a payment when it is due. The condition of a loan when a scheduled payment has not been received by the due date, but generally used to refer to a loan for which payment is 30 or more days past due.

Department of Housing and Urban Development (HUD): 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.

Department of Veterans Affairs (VA): a federal agency which guarantees loans made to military veterans. Similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

Discount Point: A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.

Down Payment: The amount of cash a buyer puts toward a purchase.

DTI: see Debt-to-income ratio

Due-on-sale Clause: A provision in a mortgage that allows the lender to demand repayment in full of the outstanding balance if the property securing the mortgage is sold.

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E

Earnest money: money put down by a potential buyer to show that he or she is 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.

Easement: A right to the use of, or access to, land owned by another.

EEM: see Energy Efficient Mortgage

Employer-Assisted Housing: A program in which companies assist their employees in purchasing homes by providing assistance with the down payment, closing costs, or monthly payments.

Encroachment: The intrusion onto another's property without right or permission.

Encumbrance: Any claim on a property, such as a lien, mortgage or easement.

Energy Efficient Mortgage: an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase

Equal Credit Opportunity Act (ECOA): A federal law that requires lenders to make credit equally available without regard to the applicant's race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant's income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

Equity: The owner's interest in a property, calculated as the current fair market value of the property less the amount of existing liens.

Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

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

Escrow Analysis: The accounting that a mortgage servicer performs to determine the appropriate balances for the escrow account, compute the borrower's monthly escrow payments, and determine whether any shortages, surpluses or deficiencies exist in the account.

Eviction: The legal act of removing someone from real property.

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

Executor: A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

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F

Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and specifies procedures for challenging errors on a credit record.

Fair Housing Act: a law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fannie Mae: A New York stock exchange company. It is a public company that operates under a federal charter and is the nation's largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

Fannie Mae-Seller/Servicer: A lender that Fannie Mae has approved to sell loans to it and to service loans on Fannie Mae's behalf.

Fannie Mae/Freddie Mac Loan Limit: The current 2004 Fannie Mae/Freddie Mac loan limit for a single-family home is $333,700 and is higher in Alaska, Guam, Hawaii, and the U.S. Virgin Islands. The Fannie Mae loan limit is $427,150 for a two-unit home; $516,300 for a three-unit home; and $641,650 for a four-unit home. Also referred to as the "conventional loan limit."

Federal Home Loan Mortgage Corporation (FHLMC): Also known as Freddie Mac, it is a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors. This provides lenders with funds for new homebuyers.

Federal Housing Administration (FHA): established in 1934 to advance homeownership opportunities for all Americans. It 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. Mortgages insured by the Federal Housing Administration are typically referred to as FHA loans.

Federal National Mortgage Association (FNMA): Also known as Fannie Mae, it is a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors. By purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

FHA: see Federal Housing Administration

First Mortgage: A mortgage that is the primary lien against a property.

First Time Home Buyer: A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.

Fixed-Period Adjustable-Rate Mortgage: An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.

Fixed-rate mortgage (FRM): a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Flood Certification Fee: A fee charged by independent mapping firms to identify properties located in areas designated as flood zones.

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

Foreclosure: The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Forfeiture: The loss of money, property, rights, or privileges due to a breach of a legal obligation.

Freddie Mac: see Federal Home Loan Mortgage Corporation

Fully Amortized Mortgage: A mortgage in which the monthly payments are designed to retire the obligation at the end of the mortgage term.

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G

General Contractor: A person who oversees a home improvement or construction project and handles various aspects such as scheduling workers and ordering supplies.

GFE: see Good Faith Estimate

Ginnie Mae: see Government National Mortage Association

Good Faith Estimate (GFE): A form required by the Real Estate Settlement and Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the borrower is likely to incur in connection with the mortgage transaction.

Government Mortgage: A mortgage loan that is insured or guaranteed by a federal government entity such as the Federal Housing Administration (FHA) or guaranteed by the U. S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).

Government National Mortgage Association (GNMA): Also known as Ginnie Mae, it is a government-owned corporation overseen by the U.S. Department of Housing and Urban Development (HUD), Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment. As with Fannie Mae (FNMA) and Freddie Mac (FHLMC), the investment income provides funding that may then be lent to eligible borrowers by lenders.

Ground Rent: Payment for the use of land when title to a property is held as a leasehold estate (that is, the borrower does not actually own the property, but has a long-term lease on it).

Growing-Equity Mortgage (GEM): A fixed-rate mortgage in which the monthly payments increase according to an agreed-upon schedule, with the extra funds applied to reduce the loan balance and loan term.

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H

Hazard Insurance: Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other covered hazards or natural disasters.

HELP: see Homebuyer Education Learning Program

Home Equity Conversion Mortgage (HECM): A special type of mortgage-developed and insured by the Federal Housing Administration (FHA) that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Sometimes called a reverse mortgage.

Home Equity Line of Credit: A type of revolving loan, that enables a home owner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in the property.

Home inspection: an examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed and may be a condition of purchase by the buyer or a requirement of the lender for a home purchase mortgage.

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.

Homebuyer Education Learning Program: an educational program from the FHA that counsels people about the homebuying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance. In most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium - from 2.25% to 1.75% of the home purchase price.

Homeowner's insurance: an insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Almost without exception, lenders will require borrowers to maintain adequate homeowner's insurance for the life of the mortgage.

Homeowners' Association: An organization of homeowners residing within a particular area whose principal purpose is to ensure the provision and maintenance of community facilities and services for the common benefit of the residents.

Housing counseling agency: provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and homebuying.

Housing Expense Ratio: The percentage of a borrower's gross monthly income that is devoted to housing costs.

HUD: see Department of Housing and Urban Development

HUD1 Settlement Statement: also known as the "closing statement" or "settlement sheet," it itemizes all closing costs and must be given to the borrower at or before closing.

HVAC: stands for Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

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I-K

Income Property: Real estate developed or purchased to produce income, such as a rental unit.

Index: A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on U.S. Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps on the maximum or minimum interest rate that may be charged on the mortgage, stated in the note.

Inflation: when the number of dollars in circulation exceeds the amount of goods and services available for purchase resulting rising prices. Inflation results in a decrease in the dollar's value.

Initial Interest Rate: The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the "start rate."

Installment: The regular periodic payment that a borrower agrees to make to a lender.

Installment Debt: A loan that is repaid in accordance with a schedule of payments for a specified term (such as an automobile loan).

Insurance: protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Interest: The fee charged for borrowing money, usually expressed as an annual percentage of the principal.

Interest Accrual Rate: The percentage rate at which interest accumulates or increases on a mortgage loan.

Interest Rate: the amount of interest charged on a monthly loan payment; usually expressed as a percentage.

Interest Rate Cap: For an adjustable-rate mortgage, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.

Interest Rate Ceiling: For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor: For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Investment Property: A property purchased to generate rental income, tax benefits, or profitable resale rather than to serve as the borrower's primary residence. Contrast with "second home."

Judgment: a legal decision by a court determining that an amount of money is owed by one party to another. When requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source. Lenders often require that all judgments (or at least all judgments over a certain dollar amount) be satisfied when refinancing or before obtaining a new home purchase mortgage.

Judgment Lien: A lien on the property of a debtor resulting from the decree of a court.

Jumbo Loan: A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac. Also called "nonconforming loan."

Junior Mortgage: A loan that is subordinate to the primary loan or first-lien mortgage loan, such as a second or third mortgage.

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