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L

Late Charge: A penalty imposed by the lender when a borrower fails to make a scheduled payment on time.

Lease-Purchase Option: An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.

Liabilities: A person's debts and other financial obligations.

Liability Insurance: Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.

LIBOR-Index: An index used to determine interest rate changes for certain ARM plans, based on the average interest rate at which international banks lend to or borrow funds from the London Interbank Market.

Lien: a legal claim against property that must be satisfied when the property is sold

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

Liquid Asset: A cash asset or an asset that is easily converted into cash.

Loan: money borrowed that is usually repaid with interest.

Loan fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan. It may result in civil liability or criminal penalties.

Loan Origination: The process by which a lender makes a loan which may include taking a loan application, processing and underwriting the application, and closing the loan.

Loan Origination Fee: A fee to cover some of the administrative costs of processing a loan. It is often expressed in points. One point is equal to 1 percent of the loan amount.

Loan-to-value ratio: a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased also known as LTV. The higher the LTV, the less cash a borrower is required to pay as down payment. When LTV exceeds 80%, the lender may require mortgage insurance or charge a higher interest rate because of the additional risk involved with lending higher percentages of a home's value.

Lock-in: An agreement in which the lender agrees to "lock-in" the borrower's interest rate for a set period of time before closing.

Loss mitigation: a process to avoid foreclosure in which the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan

LTV: see Loan-to-value ratio

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M

Manufactured Housing: Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be single- or multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail installment sales agreement.

Margin: For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.

Maturity Date: The date on which a mortgage loan is scheduled to be paid in full, as stated in the note.

Merged Credit Report: A credit report issued by a credit reporting company that combines information from the three major credit repositories.

MI: see Mortgage Insurance

Modification: Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.

Money Market Account: A type of investment in which funds are invested in short term securities.

Mortgage: A loan to finance the purchase of real estate, for which the borrower pledges the real property as security for the repayment of the loan. The borrower gives the lender a lien on the property as collateral for the loan.

Mortgage Banker: A company that specializes in originating real estate loans, and typically uses its own funds or warehouse line of credit to close loans.

Mortgage Broker: An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans, but generally does not use its own funds to close the loan. Mortgage brokers often act as independent contractors and not as an agent of the borrower or lender.

Mortgage Insurance (MI): Insurance that protects lenders against losses caused by a borrower's default on a mortgage loan. MI typically is required if the borrower's down payment is less than 20% of the purchase price.

Mortgage Insurance Premium (MIP): The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company.

Mortgage Life Insurance: A type of insurance that will pay off a mortgage if the borrower dies while the loan is outstanding; a form of credit life insurance.

Mortgage Modification: a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments usually offered by lenders in order to help a borrower avoid foreclosure.

Mortgagee: The institution or individual to whom a mortgage is given; the lender.

Mortgagor: The owner of real estate who pledges property as security for the repayment of a debt; the borrower.

Multifamily Mortgage: A mortgage loan on a building with more than four dwelling units.

Multifamily Properties: Typically, buildings with five or more dwelling units.

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N-O

Negative Amortization: An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.

Net Worth: The value of a company or individual's assets, including cash, less total liabilities.

Nonliquid Asset: An asset that cannot easily be converted into cash.

Note: A written promise to pay a specified amount under the agreed upon conditions.

Note Rate: The interest rate stated on a mortgage note, or other loan agreement.

Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Original Principal Balance: The total amount of principal owed on a mortgage before any payments are made.

Origination: the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.

Origination Fee: A fee paid to a lender to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing: A transaction in which the property seller provides all or part of the financing for the buyer's purchase of the property.

Owner Occupied Property: A property that serves as the borrower's primary residence.

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P-Q

Partial Claim: a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

Partial Payment: A payment that is less than the scheduled monthly payment on a mortgage loan.

Payment Change Date: The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.

Payment Cap: For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period.

Personal Property: Any property that is not real property.

PITI: stands for Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) typically goes into an escrow account to cover the fees when they are due.

PITI Reserves: A cash amount that a borrower has available after making a down payment and paying 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 real estate project in which individuals hold title to a residential lot and home while the common facilities are owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.

PMI: see Private Mortgage Insurance

Point: An amount equal to 1 percent of the loan amount.

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.

Pre-Approval: A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant's credit history and may involve the review and verification of income and assets to close.

Pre-foreclosure sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-Qualification: A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.

Premium: an amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment: payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty depending on the terms of the particular mortgage.

Prepayment Penalty: A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principle balance.

Principal: The amount of money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.

Private Mortgage Insurance: privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

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

Purchase and Sale Agreement: A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.

Purchase Money Mortgage: A mortgage loan that enables a borrower to acquire a property.

Qualifying Guidelines: Criteria used to determine eligibility for a loan.

Qualifying Ratios: Calculations that are used in determining the loan amount that a borrower qualifies for, typically a comparison of the borrower's total monthly income to monthly debt payments and other recurring monthly obligations.

Quality Control: A system of safeguards to ensure that loans are originated, underwritten and serviced according to the lender's standards and, if applicable, the standards of the investor, governmental agency, or mortgage insurer.

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R

Radon: a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Rate Caps: For an adjustable rate mortgage loan, the maximum interest rate that may be charged, either at the time of each adjustment date or over the life of the loan.

Rate Lock: An agreement in which a lender "locks in" or guarantees an interest rate for a specified period of time prior to closing. See also "Lock-in"

Real estate agent: an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

Real Estate Settlement Procedures Act (RESPA): A federal law that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also, prohibits kickbacks and unearned fees in the mortgage loan business.

Real Property: Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.

Realtor: a real estate agent or broker who is a member of the National Association of Realtors and its local and state associations.

Recorder: 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."

Recording: The filing of a lien or other legal documents in the appropriate public record.

Refinancing: paying off one loan by obtaining another using the same property as collateral; Refinancing is generally done to secure better loan terms (like a lower interest rate), cash out equity, or consolidate other debts.

Rehabilitation mortgage: a mortgage that covers the costs of rehabilitating (repairing or improving) a property. Some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Remaining Term: The original number of payments due on the loan minus the number of payments that have been applied.

Repayment Plan: An arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Rescission: The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers may have a right to cancel certain mortgage refinance transactions within three business days after closing, or for up to three years in certain instances.

RESPA: see Real Estate Settlement Procedures Act

Revolving Debt: Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.

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.

Rural Housing Service (RHS): An agency within the U.S. Department of Agriculture (USDA), which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing.

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S

Sale-Leaseback: A transaction in which the buyer leases the property back to the seller for a specified period of time.

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

Secondary Mortgage Market: The market in which mortgage loan and mortgage-backed securities are bought and sold.

Secured Loan: A loan that is backed by property such as a house, car, jewelry, etc.

Security: The property that will be given or pledged as collateral for a loan.

Seller Take-Back: An agreement in which the seller of a property provides financing to the buyer for the home purchase. See also "Owner Financing" Servicer: A firm that performs servicing functions, including collecting mortgage payments, paying the borrower's taxes and insurance and generally managing borrower escrow accounts.

Servicing: The tasks a lender performs to protect the mortgage investment, including the collection of mortgage payments, escrow administration, and delinquency management.

Settlement: The process of completing a loan transaction at which time the mortgage documents are signed and then recorded, funds are disbursed, and the property is transferred to the buyer (if applicable). Also called closing or escrow in different jurisdictions. See also "Closing"

Settlement Statement: A document that lists all closing costs on a real estate purchase or refinance transaction.

Single-Family Properties: One- to four-unit properties including detached homes, townhouses, condominiums, and cooperatives, and manufactured homes attached to a permanent foundation and classified as real property under applicable state law.

Soft Second Loan: A second mortgage whose payment is forgiven or is deferred until resale of the property.

Soldiers and Sailors Civil Relief Act: A federal law that restricts the enforcement of civilian debts against military personnel who may not be able to pay because of active military service.

Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate: to place in a rank of lesser importance or to make one claim secondary to another.

Survey: A precise measurement of a property by a licensed surveyor that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat Equity: A borrower's contribution to the down payment for the purchase of a property in the form of labor or services rather than cash.

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T

Taxes and Insurance: Funds collected as part of the borrower's monthly payment and held in escrow for the payment of the borrower's state and local property taxes and insurance premiums.

Termite Inspection: An inspection to determine whether a property has termite infestation or termite damage. In many parts of the country, a home must be inspected for termites before it can be sold.

Third-Party Origination: A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package a mortgage loan. See also "Mortgage Broker"

Title: A legal document evidencing a person's right to or ownership of a property.

Title 1: an FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home. Title I loans less than $7,500 don't require a property lien.

Title Insurance: Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against losses arising from defects in the title not listed in the title report or abstract.

Title Search: A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.

Trade Equity: Real Estate or assets given to the seller as part of the down payment for the property.

Transfer Tax: State or local tax payable when title to property 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 by the U.S. Treasury of Treasury bills and securities.

Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan including, if applicable, the initial period and subsequent adjustments to different rate. This disclosure must detail a "worst-case scenario," in which the maximum rate adjustments allowable under the terms of the mortgage are detailed for the borrower.

Two- to Four- Family Property: A residential property that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed; a loan secured by such a property is considered to be a single-family mortgage.

Underwriting: In mortgage lending, the process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness, ability to repay the loan, and the value of the property securing the loan.

VA: see Department of Veterans Affairs

VA Guaranteed Loan: A mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).

Walkthrough: A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing, for example, within the 24 hours before closing.

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