Glossary of Terms
Mortgage & Real Estate Terms
Commonly used mortgage loan application developed by Fannie Mae. Sometimes called the Uniform Residential Loan Application, usually just 1003
A verbal or written acceptance of an offer to buy a home, made from the seller to the buyer.
A land measurement commonly used in U.S. property negotiations. One acre equals 43,560 square feet.
Adjustable rate mortgage, ARM
A type of mortgage loan characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may not exceed the ARM loan cap.
The process of a loan's value over a period of time. Often amortization is laid out on an amortization schedule or measured by an amortization calculator.
Annual percentage rate, APR
The truest cost of a home loan. Per the Truth in Lending Act, all mortgage lenders must disclose their APR. In the mortgage industry, APR may include fees such as documentation fees, private mortgage insurance and more.
The measurable value that increases on a home or property. Market improvements and home renovations often drive appreciation value.
A value determined by local government assessors and used to calculate annual property or real estate taxes.
A type of mortgage that may be transferred, interest rate and all, from seller to buyer - like FHA loans.
A short-term high-risk loan that leaves the borrower with a potentially high loan balance at the end of the loan term. Some of these loans automatically renew at prevailing rates, whereas others may require the balloon payment be paid in full.
A Real Estate situation in which a seller or lender kicks in a sum of money in order to lower the initial interest rate on a home loan to make a sale more appealing for the buyer.
A short-term loan used to quickly effect a sale while pending more conventional real estate financing. While not popular, a bridge loan can be useful particularly for certain commercial real estate deals.
Real estate agent that works on behalf of the homebuyer.
Profit earned on an asset, such as a home or property.
Capital gain tax
A tax levied against the profit made on the sale of a home and/or property.
Cash out refinance
The formal documented sale of a home and/or property that includes signing all documents associated with the exchange and payment of required closing fees. A closing agent usually oversees this process.
The person responsible for mediating the closing, documenting the process and assuring all associated paperwork is completed. May be an attorney or official from a title or mortgage company.
Closing costs typically range from 3–6% of the home’s purchase price.1 Thus, if you buy a $200,000 house, your closing costs could range from $6,000 to $12,000. Closing fees vary depending on your state, loan type, and mortgage lender, so it’s important to pay close attention to these fees.
An itemized list of closing costs.
A borrower with good credit that agrees to take on shared responsibility for a home loan so that the primary borrower may purchase property.
An intermediary between the borrower and the lender. The broker may represent several lending sources and charges a fee or commission for services.
Certificate of reasonable value (CRV)
A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.
Certificate of title
Document rendering an opinion on the status of a property's title based on public records.
A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also: open-end mortgage.
Cloud on title
Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan. .
A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate.
One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.
An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities and the tennis courts.
A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.
A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.
A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).
One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor.
Rules and restrictions governing the use of property.
See: certificate of reasonable value.
Money owed to repay someone.
The ratio between a borrower's monthly payment obligations divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans).
Deed of trust
A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan.
Department of Housing and Urban Development (HUD)
The U.S. government agency that administers FHA, GNMA and other housing programs.
Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000.
The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.
A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold (subject to the terms of the security instrument).
Dwelling divided into two units.
Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.
Equal Credit Opportunity Act
A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.
The value of a property beyond any liens against it. Also referred to as owner's interest.
A provision allowing one party or more to cancel all or part of the contract if certain events fail to happen, such as the ability of the buyer to obtain financing within a specified period.
Money placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year.
Fair market value
The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.
Nickname for Federal National Mortgage Association (FNMA).
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
A quasi-governmental, federally-sponsored organization that acts as a secondary market. investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA.
Federal Housing Administration (FHA)
An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA's objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.
Federal National Mortgage Association (FNMA or Fannie Mae)
A private corporation that acts as a secondary market. investor to buy and sell mortgage loans. FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available.
The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner's designated heirs. Also known as fee absolute.
See: Federal Housing Administration.
A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.
A mortgage whose rate remains constant throughout the life of the mortgage.
The Federal Flood Disaster Protection Act of 1973 requires that federally-regulated lenders determine if real estate to be used to secure a loan is located in a Specially Flood Hazard Area (SFHA). If the property is located in a SFHA area, the borrower must obtain and maintain flood insurance on the property. Most insurance agents can assist in obtaining flood insurance.
See: Federal National Mortgage Association
Nickname for Federal Home Loan Mortgage Corporation (FHLMC).
This includes amounts from a relative or a grant from the borrower's employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid.
Nickname for Government National Mortgage Association (GNMA).
Good faith estimate
Estimate on closing costs and monthly mortgage payments provided by the lender to the homebuyer within 3 days of applying for a loan.
Government National Mortgage Association (GNMA or Ginnie Mae)
A government organization that participates in the secondary market, securitizing pools of FHA, VA, and RHS loans.
Graduated payment mortgage (GPM)
A fixed-interest loan with lower payments in the early years than the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period.
A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.
Home equity loan
A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation. .
A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be completed before the home is sold.
A form of insurance that protects the insured property against loss from theft, liability and most common disasters.
Housing and Urban Development. (HUD)
The U.S. government agency that administers FHA, GNMA and other housing programs.
Housing affordability index
Indicates what proportion of homebuyers can afford to buy an average-priced home in specified areas. The most well known housing affordability index is published by the National Association of Realtors.
Housing expenses-to-income ratio
See: debt-to-income ratio.
See: Housing and Urban Development.
Income approach to value
A method used by real estate appraisers to predict a property's anticipated future income. Income property includes shopping centers, hotels, motels, restaurants, apartment buildings, office space and so forth.
See: debt-to-income ratio.
A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable rate mortgages (ARMs).
As a part of PITI, the amount of the monthly mortgage payment that does not include the principal, interest, and taxes. Also see: homeowners insurance.
The amount of the entire mortgage loan which does not include the principal. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance.
The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also: Annual Percentage Rate.
A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.
Real estate deemed highly valuable because of its location.
A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanics lien for unpaid debt to a subcontractor.
The capability of an asset to be readily converted into cash.
Loan origination fee
See: origination fee.
Loan-to-value ratio (LTV)
The relationship, expressed as a percentage, between the amount of the proposed loan and a property's appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.
The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate.
The cost of the upkeep of the house. These costs may be minor in cost and nature (replacing washers in the faucets) or major in cost and nature (new heating system or a new roof) and can apply to either the interior or exterior of the house.
The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 1.50 added to a 7 percent index establishes an adjusted interest rate of 8.50 percent.
The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area
A change in the terms of the mortgage note, such as a reduction in the interest rate or change in maturity date.
A legal instrument in which property serves as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage.
A lender that originates, closes, services and sells mortgage loans to the secondary market.
An intermediary between a borrower and a lender. A broker's expertise is to help borrowers find financing that they might not otherwise find themselves.
Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. FHA mortgage insurance requires a payment of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.
Interest rate charge for borrowing the money for the mortgage. It is a used to calculate the interest payment on the mortgage each month.
The length of time that a mortgage is scheduled to exist. Example: a 30-year mortgage term is for 30 years.
A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan's principal. The borrower may end up owing more than the original amount of the mortgage.
In a mortgage contract, a statement that prohibits a new buyer from assuming a mortgage loan without the approval of the lender.
A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are nonconforming. See also: conforming loan.
A signed document that acknowledges a debt and shows the borrower is obligated to pay it.
A mortgage allowing the borrower to receive advances of principal from the lender during the life of the loan. See also: closed-end mortgage.
The amount charged by a lender to originate and close a mortgage loan. Origination fees are usually expressed in points.
Abbreviation for principal and interest.
Abbreviation for principal, interest, taxes and insurance.
Charges levied by the lender based on the loan amount. Each point equals one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point.
Tentative establishment of a borrower's qualification for a mortgage loan amount of a specific range, based on the borrower's assets, debts, and income.
The interest rate commercial banks charge their most creditworthy customers.
The amount of the entire mortgage loan, not counting interest. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the interest, insurance, and taxes.
Private mortgage insurance (PMI)
See: mortgage insurance.
The amount which the state and/or locality assesses as a tax on a piece of property.
To proportionally divide amounts owed by the buyer and the seller at closing.
Basis points (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points and 0.01% = 1 basis point.
As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income.
Abbreviation for the Real Estate Settlement Procedures Act, which allows consumers to review settlement costs at application and once again prior to closing.
Reverse annuity mortgage
A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower's equity in the home is used as security for the loan.
Rural Housing and Community Service
Right of first refusal
Purchasing a property under conditions and terms made by another buyer and accepted by the seller.
Right of rescission
When a borrower's principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction. Any and all money paid by the borrower must be refunded upon rescission. The right to rescind does not apply to loans to purchase real estate or to refinance a loan under the same terms and conditions where no additional funds will be added to the existing loan.
At the end of the construction loan period, the borrower's file is delivered to Bank One Mortgage Loan Servicing Dept. Prior to delivery, CLD contacts the borrower and obtains funds for the tax and insurance escrows, a final title policy and homeowner's policy. This process is called a rollover.
Rural Housing and Community Development Service
A federal agency that administers mortgage loans for buyers in rural areas.
A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term.
A market comprising investors like GNMA, FHLMC and FNMA, which buy large numbers of mortgages from the primary lenders and sell them to other investors.
The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan.
See: closing costs.
A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc.
A written document conveying title to property repossessed by the government due to default on tax payments.
The amount of money that the homeowner is not required to pay the government in taxes because he or she owns a home.
As a part of PITI, the amount of the monthly mortgage payment which does not include the principal, interest, and insurance.
See: deed of trust.
Truth In Lending Act
The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate and other associated costs to homebuyers within three working days of the loan application.
A professional who approves or denies a loan to a potential homebuyer based on the homebuyer's credit history, employment history, assets, debts and other factors such as loan guidelines.
Uniform Settlement Statement
A standard document prescribed by the Real Estate Settlement Procedures Act containing information for closing which must be supplied to both buyer and seller.
Periodic housing costs for water, electricity, natural gas, heating oil, etc.
See: Veterans Administration.
Variable rate mortgage (VRM)
See: adjustable rate mortgage.
Veterans Administration (VA)
The federal agency responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a funding fee of 1 percent of the loan amount.
A document protecting a homebuyer against any and all claims to the property.
The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.