MORTGAGE GLOSSARY

Acceptance
A seller's consent to enter into a contract and be bound by the terms of the offer.

Additional Principal Payment
A payment by a borrower of more than the scheduled amount due, in order to reduce the remaining balance on the loan. Additional principal payments early on in your loan can save you thousands of dollars in interest over the life of your loan.

Adjustable Rate Mortgage (ARM)
A variable rate mortgage with an interest rate that adjusts periodically. The interest rate will adjust to a rate equal to the "margin" plus the financial index that your loan is based upon. Also called a variable rate mortgage.

Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three, five and seven years.

Amenity
A feature of a real property that enhances its attractiveness and increases the occupant or user's satisfaction. Natural amenities include a desirable location. Man-made amenities include swimming pools, tennis courts, and community buildings.

Amortization
Literally meaning "kill off" (root mort) the outstanding balance of a loan by making regular payments (usually monthly). The payments are set up so that the borrower pays both interest and principal with each equal payment.

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

Annual Cap
Annual maximum adjustment of your adjustable rate mortgage. For example if your annual rate cap is 2%, your mortgage interest rate can only increase by a maximum of 2% regardless of how much the index is increased.

Annual Percentage Rate (APR)
The cost of credit expressed as a yearly rate. This rate may differ from the interest rate on your loan because it includes all interest (including points), mortgage insurance, and other fees associated with completing your loan.

Application Fee
The fee charged by a lender, or broker, to the borrower for applying for a loan. Payment of this fee does not guarantee that the loan will be approved.

Appraisal
An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on several factors including most recent sales of comparable properties or replacement cost of the property.

Appraised Value
The opinion or estimate of a properties fair market value as expressed in an appraisal. This information is based on an appraiser's knowledge, experience and analysis of the property. Appraised values may also be based on computer values.

Appreciation
An increase in the value of property over time due to changing local or national market conditions.

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

Assignment
The transfer of a mortgage from one person to another.

Assumable Mortgage
A mortgage that can be taken over or "assumed" by the buyer when the house is sold. Often the seller is still the guarantor of the liability.

Attorney-in-fact
One who holds power of attorney from another to execute documents on behalf of the grantor of the power.

Balloon Mortgage
A mortgage that has equal monthly payments which are insufficient to amortize the loan so that a "balloon" or lump sum payment for the remaining balance is due at the end of term. Frequently these mortgages contain an opportunity to refinance.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. If you had a bankruptcy in the past twenty-four months, please call for more information.

Before-tax Income
Income before taxes are deducted. Often referred to as gross income.

Bond
An interest bearing certificate of debt with a maturity date. An obligation of a government or

Borrower
A person to who borrows money from someone else.

Breach
A violation of any legal obligation.

Bridge Loan
A form of second trust that is collateralized by the borrower's present home in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.

Broker
An individual in the business of assisting in the arranging funding or negotiating contracts for a client, who does not loan the money himself. Brokers either charge a fee or receive a commission for their services.

Building Code
Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Buy Down Mortgage
A temporary buy down is a mortgage in which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buy down reduces the interest rate over the life of a mortgage.

Call Option
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at a specific period for whatever reason.

Cap
A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as n 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over it's lifetime. Loans like the 3/1 and 5/1 adjustable, which have an initial fixed period are quoted with three numbers as in 2/6/3 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%. two-step loans are quoted with a single cap, which is the amount the loan may adjust at a single adjustment date. See Periodic Rate Cap and Lifetime Rate Cap

Capital
1) Money used to create income, either as an investment in a business or an income property. 2) The money or property comprising the wealth owned or used by a person or business enterprise. 3) The accumulated wealth of a person or business.

Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to add to it's value.

Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to it's value and useful life.

Cash 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. Lenders typically require an amount of reserves equal to a predefined number of monthly mortgage payments.

Cash-out Refinance
A refinance transaction in which the amount of money received from a new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage lien.

Certificate of Deposit
A document written by a bank or other financial institution that is evidence of a deposit plus earnings at a specified interest rate with a specified time period.

Certificate of Deposit Index
An index that is used to determine interest rate charges for certain ARM plans. It represents the weakly average of secondary market rates on six month negotiable Certificates of Deposit

Certificate of Eligibility
A document issued by the federal government certifying a veteran\'s eligibility for a Department of Veterans Affairs (VA) Mortgage.

Certificate of Occupancy (CO)
Written authorization by a local municipality or authority (typically for only newly completed or nearly completed structures) to live in the property. This typically follows an inspection to ensure compliance with local standards and codes.

Certificate of Reasonable Value (CRV)
A certificate issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of Title
A statement provided by an abstract company, title company or attorney stating that the title to real estate is legally held by the current owner.

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

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an ARM.

Chattel
Another name for personal property.

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

Closing
A meeting at which the buyer signing the mortgage documents and paying closing costs finalizes a sale of property. Also called a "Settlement".

Closing Cost Item
A fee or amount that a home buyer must pay at closing for a single service, tax or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees.

Closing Costs
There are costs associated with the completion of the purchase and/or financing of your property. For a property purchase, the costs may be payable by either the purchaser or the seller.

Closing Statement
see HUD-1 Statement.

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 a quitclaim deed, release, or court action.

Co-Borrower
A person whose income and credit worthiness is utilized in addition to the borrower to obtain a mortgage. This person is individually and jointly obligated to repay the mortgage and may or may not share ownership of the property.

Co-insurance
A sharing of insurance risk between the insurer and the insured. Co-insurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Co-insurance clause
A provision in a hazard insurance policy that states the amount of coverage that must be maintained--as a percentage of the total value of the property--for the insured to collect the full amount of a loss.

Co-Signer
See: Co-Borrower.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment Fee
A fee charged by some lenders to borrowers to attain a mortgage.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

Common Area Assessments
Levies against individual owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit developments (PUD) of condominium projects homeowners' associations that are used by all of the unit owners.

Common Law
An unwritten body of law based on general custom in England and used to an extent in the United States.

Community Property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as a separate property of either spouse.

Comparables
An abbreviation for "comparable properties" used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold.

Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

Condominium
A form of ownership where the dwelling units are individually owned and homeowners share ownership of common areas.

Conforming Loan
A loan that conforms to Federal National Mortgage Association(FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Under $333,700 for a one family home, $427,150 for a two family home, $515,300 for a three family home and $641,650 for a four family home.

Consumer Handbook on Adjustable Rate Mortgages
A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

Conversion
The right of a borrower to convert an adjustable or balloon loan in a fixed loan.

Conventional Mortgage
A mortgage neither insured by the FHA nor guaranteed by the VA.

Convertibility Clause
A provision in some adjustable-rate mortgages (Arms) that allows the borrowers to change the ARM to a fixed-rate mortgage at specified time frames after loan origination.

Convertible ARM
An adjustable rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Co-operative (co-op)
A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the co-operative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Corporate Relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business.

Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings and advances of the 1th District of the Federal Home Loan Bank of San Francisco.

Covenant
A clause in a mortgage that obligates or restricts the borrower and, if violated, can result in foreclosure.

Credit
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 Company
A company that creates the credit reports that are utilized in determining the borrowers of credit worthiness.

Credit History
A record of an individual's open and fully repaid debts. 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 often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Credit Rating
Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower's payment history, foreclosures, and bankruptcies.

Credit Report
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine credit worthiness. Information regarding late payments, defaults, bankruptcies, etc. will appear here.

Creditor
A person to whom money is owed.

Debt
An amount owed to another.

Debtor
A person to who owes money to someone else.

Debt-to-Income ratio
The ratio of the borrower's total monthly obligations. This includes housing principal, interest, taxes, insurances and recurring monthly payments to monthly income. Two common debt ratio's used are the "front-end ratio" and "back-end ratio."

Deed
The legal document conveying title to a property.

Deed of Trust
The document used in some states instead of a mortgage; title is conveyed to a trustee until the loan is repaid.

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency
Failure to make mortgage payments when mortgage payments are due.

Department of Housing and Urban Development (HUD)
The U.S.Government agency that administers FHA, GNMA and other housing programs.

Discount Points
See Points

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.

Duplex
Dwelling divided into two units, usually occupied by two different residents.

Earnest Money
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

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

Effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Encroachment
An improvement that intrudes illegally on another's property.

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

Equal Credit Opportunity Act
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 form public assistance programs.

Equity
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.

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 when they become due.

Escrow Account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

Escrow Collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance and hazard insurance.

Estate
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.

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

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
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.

Fee Simple
The maximum form of ownership with the right to occupy a property and sell it to a buyer at any time. In the event of the death of the owner, the property goes to the owner's designated heirs.

Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and or broker.Appraisal, credit report and title search fees are not included in the finance charge calculation.

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

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

Float
Between the time of application and closing, a borrower may choose to gamble on interest rates decreasing by electing to float, floating is essentially choosing not to lock the interest rate. Opposite of Lock (verb).

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

Flood Letter of Flood Certifications
An assessment is done using maps and other tools to attest as to whether the property is in a flood area.

Foreclosure
The legal process by which a borrower in default under a mortgage/deed of trust, loses their interest in the mortgaged property; This process usually involves a forced sale of the property at public auction with the proceeds of sale paying mortgage debts.

Front-end Ratio
The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Housing Ratio.

Gift funds
Funds donated to the borrower from certain eligible sources to assist the borrower in meeting closing costs. Generally, eligible sources are a relative, church, municipality, or a non-profit organization.

Ginnie Mae (GNMA)
A subsidiary corporation of HUD. Ginnie Mae (GNMA) assumed responsibility for the special assistance loan program formerly administered by Fannie Mae.

Good Faith Estimate
An estimate of charges, which a borrower is likely to incur in connection with a loan closing.

Government Mortgage
A mortgage that is insured by FHA, or guaranteed by VA or the Rural Housing Service.

Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Hazard Insurance
Covered in homeowner's insurance, this insurance coverage compensates for physical damage to a property from fire, wind, vandalism, and other hazards. Most mortgages require proof of hazard insurance.

Home Equity Line of Credit
A mortgage loan, which is usually in a subordinate position that allows the borrower to obtain multiple advances of the loan proceeds at their discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

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

Homeowner's Association
A non-profit association, whose directors and officers are elected by the unit owners of a condominium, or PUD project. Primary responsibilities are to manage the common areas, expenses and services of the project.

Homeowner's Insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and it's contents.

HUD-1 Statement
Also known as a "closing statement" or "settlement sheet". A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include commissions, loan fees, and initial escrows.

In-file Credit Report
An objective account, normally computer generated, of credit and legal information obtained from a credit repository.

Index
A number used to compute the interest rate for ARMs. The index is a published number, such as the average interest rate on Treasury Bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.

Inflation
An increase in the ratio of money or credit to goods or services that results in an overall increase in the price level of goods and services.

Initial Interest Rate
The original interest rate of the mortgage at the time of closing. This rate changes for an ARM. Sometimes known as "start rate" or "teaser".

Installment Debt
Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

Insurable Title
A property title that a title insurance company agrees to insure against defects and disputes.

Insurance
A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the payment is known as an insurance premium.

Insurance Binder
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Interest
The fee charged for borrowing money.

Interest Rate
The percentage of an amount of money, which is paid for its use over a specified time.

Interest Rate Ceiling
Also known as "Lifetime Cap." For an adjustable rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Investment Property
A property that is not occupied by the owner.

Joint Tenancy
A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

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

Jumbo Loan
A loan above $300,700 (higher for 2-4 units). The Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) set these limits. Because jumbo loans cannot be funded by these two agencies, they may carry a higher interest rate.

Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

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

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

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

Lien
A legal claim against a property that must be paid off when the property is sold.

Life of loan
The full term of a loan.

Lifetime cap
The maximum interest rate that can be charged during the life of the loan. This value is often expressed as an increment above the initial loan rate. For example, an adjustable rate loan with an initial rate of 4.25% and a 6% lifetime cap will never ad just above a rate of 10.25% (4.25+6.0).

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

Loan Commitment
See Commitment Letter.

Loan Discount
Also known as "points". This is prepaid interest made at the time of closing that decreases your interest rate and monthly payment.

Loan Origination
The process by which a mortgage lender brings into existence a mortgage secured by real property.

Loan Origination Fee
Some lenders charge a fee, typically 1 point or 1 percent of loan value to originate the loan for you, the borrower.

Loan-to-Value Ratio (LTV)
The relationship, expressed as a percentage between the amount of the proposed loan and a property's appraised value or purchase price. For example, a $75,000 loan on a property appraised at $100,000 has a 75% loan-to-value ratio.

Lock (noun)
The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken.

Lock (verb)
The act of committing to a mortgage rate. This action, taken by a borrower sometime between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender. Opposite of Float.

Lock-in
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.

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

Margin
For an ARM, the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

Market Value
The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.

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

Merged Credit Report
A credit report that contains information from three credit reporting agencies. When the report is created the information is compared for duplicate entries. Any duplicates are combined to provide a summary of your credit.

Monthly Housing Expense
Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability. Often referred to as P.I.T.I.

Mortgage
A legal instrument in which a lien on real property is granted as security for the repayment of a loan. In some states a deed of trust is used rather than a mortgage.

Mortgage Banker
A lender that originates, closes, services, and sells mortgage loans to the secondary market.

Mortgage Broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Mortgage Insurance (MI)
A contract that insures the lender against loss caused by a mortgagor's default on a mortgage. Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually all of the mortgage loan.

Mortgage Insurance (MI) Premium
The amount paid by a mortgagor for mortgage insurance, either to a government agency or to a private mortgage insurance (MI) company.

Mortgagee
The lender.

Mortgagor
The borrower.

Negative Amortization
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

Net Cash Flow
The income that remains for an investment property after all associated expenses are subtracted from the property's income.

Net Income
Gross income less federal income tax.

Net Worth
The value of all of a person's assets, including cash, minus all liabilities.

Non-Assumption Clause
In a mortgage contract, a statement that disallows a new buyer to assume a mortgage payment without the approval of the lender.

Non-Conforming Loan
A loan that does not conform to Fannie Mae (FNMA)Or Federal Home Loan Mortgage Corporation FHLMC) guidelines either because the loan amount is too high or FNMA/FHLMC underwriting or other criteria are not met. Jumbo loans are a common example.

Non-Permanent Resident Alien
A non U.S.citizen who resides outside of the United States.

Note
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.

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

Origination Fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point equals 1 percent of the mortgage amount.

Owner Financing
a property purchase transaction in which the property seller provides all or part of the financing.

Periodic Payment Cap
For ARMs a limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap
For ARMs a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how or low the index might be.

PITI
Abbreviation for principal, interest, taxes, and insurance.

Planned Unit Development (PUD)
A real estate project in which each unit owner has title to a residential lot and building and a non-exclusive easement on the common areas of the project.

Points
Prepaid interest paid by the borrower to the lender at closing. A point equals 1 percent of the loan amount (e.g.1 point on a $150,000 mortgage would cost the borrower $1,500). Generally, by paying more points at closing, the borrower reduces interest rate of his loan and by extension, monthly payments. Also known as loan discount.

Pre-Qualification
The process of tentatively determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

Prepaid Items
Items that must be paid at the time of closing and are generally recurring charges. Prepaid items may include a) first year premiums for hazard, flood, and mortgage insurance (if applicable) b) A couple months of taxes and partial month's interest.

Prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Prepayment means payment occurs before the loan requires the payment to be made based on the loan amortization.

Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

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

Private Mortgage Insurance (MI)
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 with a loan-to-value (LTV percentage in excess of 80%)

Prorate
To proportionally divide amounts owed by the buyer and seller at closing.

Qualification
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, income and other factors.

Qualifying Ratio
The percentage of the borrower's fixed monthly expenses to his gross monthly income.

The Front-End Ratio is the percentage of a borrower's gross monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal Payment + Mo

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

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.

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

Rescission
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

Recorder
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a "Registrar of Deeds" or "Country Clerk."

Recording
The noting in the registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or extension of mortgage, thereby making it a part of the public record.

Refinance
Retirement of an existing debt from the proceeds of a new loan using the same collateral as security.

Rental Income
Income generated by renting property to a tenant.

Reserves
See Cash Reserves

Resident Alien
A non-U.S. citizen who is granted most of the rights of a U.S. citizen, including permanent residency in the U.S. Residents alien status is usually evidenced by a "Green Card"

Revolving Debt
A debt that doesn't not have a fixed payment, although repayment is usually a percentage of the outstanding balance and made at regular intervals; most common are credit cards.

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.

Second Mortgage
A loan that is junior to the first mortgage and often has a higher interest rate and a shorter term.

Second/Vacation Home
A second home is occupied by the borrower for some portion of the year for their exclusive use and enjoyment but which is suitable for year-round occupancy. It cannot be subject to a mandatory rental pool and the borrower does not intend to lease out.

Secondary Market
A market in which investors like GNMA, FHLMC,FNMA,and private organizations buy large numbers of mortgages from the primary lenders and either hold them in their portfolio or package them for sale to others.

Self-Employed Borrower
A borrower whose income is derived from a business in which they have an ownership interest of 25% or more.

Servicing
The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, interest, taxes and insurance, as well as keeping the borrowers informed of any changes in the status of the loan.

Settlement
The closing of a mortgage loan.

Settlement Costs
See: Closing Costs

Settlement Sheet
See: HUD-1 Statement

Survey
A physical measurement of property done by a registered professional showing the boundaries, dimensions and location of any buildings as well as easements, rights of way, roads etc.

Tax Lien
A claim against real estate for the amount of its unpaid taxes.

Tenancy By The Entirety
A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.

Tenancy in Common
A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy.

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

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

Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio.

Townhouse
An architectural type of construction; a row house on a small lot that has exterior limits common to other similar units; title to the unit and its lot is vested in the individual owner with a fractional interest in common areas, if any.

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 ARMs. It is based on auctions that the Treasury holds for its Treasury bills and securities or from the Treasury's daily yield curve.

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

Truth-In-Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rage (APR) and other charges.

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.

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's credit worthiness and the quality of the property itself.

VA Loan
A government backed mortgage loan supported by the U.S.Vetrans Administration.

Variable Rage Mortgage
See Adjustable Rate Mortgage.

Walk Through
An inspection of a property by the prospective buyer prior to closing on a mortgage.

Warranty Deed
A document protecting a home buyer against any and all claims to the property.

Yield
The ratio of investment income to the total amount invested over a given period of timep;Also known as "return on investment" or ROI.